Good morning and thank you for joining Bentley Systems' Q4 2023 Results and 2024 Outlook Webcast. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Chief Executive Officer, Greg Bentley; Chief Operating Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of February 27th, 2024, 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 for replay on Bentley Systems Investor Relations website at investors.bentley.com on February 27th, 2024. After our presentation, we will conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.

Good morning and as always thanks to each of you for your continued interest and investments in BSY. I will start by relating the directions reflected in our 2023 results to our consistent expectations for 2024 and then some developing aspects, which also have a bearing on our outlook. Nicholas will cover operational highlights of the quarter, including soundings of the current tone of business on every front, and Werner will review financial details for both years, all the way through cash generation and its planned allocation. Most significantly, I must emphasize our overall satisfaction with Q4 and the full year 2023. In keeping with this, Nicholas and his operating teams are to be enthusiastically congratulated for performance, which while surpassing our established annual hurdle of 100 basis points improvement in operating margin including stock-based compensation, earned 100% of their new business-based incentive pool. Although this entailed resourceful rebalancing after new mining investment unexpectedly slowed down in midyear, we have ended the year with historically high momentum in our fundamental ARR growth. A quarter ago a key question about ARR growth for 2023 Q4 was the degree to which accelerating progress in transitioning our China commercial model to be less directly subscription-oriented could perversely offset overall ARR growth. Otherwise, always our best performance gauge across the remaining 97% of our world. Indeed China, which previously was an ARR growth contributor, has been the significant detractor from our ARR growth as shown here ever since sanctions on Russia coincided with geopolitical apprehension about American software subscriptions for Chinese state-owned infrastructure enterprises. In 2023 Q4, our purposeful structural changes in China did seem to be making progress. When Chinese developed products of our first joint venture cannibalized project-wise installations, we lose ARR in exchange for approximately equivalent one-time net proceeds of the…

Thank you, Greg. First, I also want to congratulate our teams around the world, who worked tirelessly to deliver another great quarter and year. We accomplished a tremendous amount that positions us even better to take advantage of the favorable dynamics for infrastructure and I will see continuing into the foreseeable future. In fact, in Q4, we saw no major changes to the macro trends we have discussed throughout the year and we expect these trends to continue in 2024. The engineering resources capacity gap to fulfill the demand for infrastructure is widening. In the most recent ACEC quarterly survey, US engineering firms across all sectors continue to expect a higher backlog of projects 12 months from now. This fits what we are hearing from users around the world. They are struggling to find the people and skills necessary to fulfill the demand. All of these is fueling the need for infrastructure organizations large and small to go digital and leverage software to be able to do more with less in better ways. Moving to our performance in Q4. It was also very consistent with previous quarters. Starting with our infrastructure sectors. Our largest sector public works and utilities continues to be the main growth driver for the company benefiting from infrastructure investments around the world whether in transportation, water utilities or the electric grid. In this context, Power line systems or applications for analysis and simulation of overhead transmission infrastructure continue to perform very well. In terms of resources we are seeing consistent trends to last quarter. Seequent performed as expected given the slowdown of new mine investments continuing to weigh on its growth rate. Industrial remained mixed as growth with EPCs continue to slow down especially in Asia Pacific. The commercial and facility sector remained relatively flat. Moving…

Thank you, Nicolas. We are pleased with another strong quarter to finish out a great year. Total revenues for the fourth quarter were $311 million, up 8% year-over-year, or 7% in constant currency. Our fourth quarter revenues were impacted by timing from the continued upgrades of our accounts from traditional annual subscriptions with upfront revenue recognition to our E365 commercial model, where revenues are recognized on a more radial basis. Such E365 upgrades and the associated timing impact on revenue recognition were slightly higher than what we modeled. Otherwise, the quarter was in line with our expectations. For the full year, total revenues were $1.228 billion and grew 12% on a reported and constant currency basis. Subscription revenues for the quarter grew 8% year-over-year, or 7% in constant currency, and represented 88% of our total revenues. As just mentioned, subscription revenues were impacted by the timing aspects from our continued E365 upgrades. E365 now reflects 38% of our 2023 subscription revenues, up from 32% in 2022. For the year, subscription revenues grew 13% on a reported and constant currency basis. Our E365 and SMB initiatives continue to be solid contributors to our subscription revenues growth. Perpetual license revenues for the fourth quarter grew 6% year-over-year in reported and constant currency. For the full year, perpetual licenses revenues grew 6% in reported and 7% in constant currency. Even though, perpetual license make up only 4% of total revenues and will certainly remain small relative to our recurring revenues, they have grown in significance to us and we expect the relative importance to our commercial offerings to continue, particularly for SMB and in China due to local preferences. Our professional services revenues for the quarter grew 9% year-over-year in reported and 7% in constant currency. For the year, services revenues grew 7%…

Thanks Werner. In order for everyone to ask a question today we ask that you limit yourselves just one. Our first question is from Matt Hedberg from RBC.

Great. Thanks guys. Thanks for taking my question. So, I guess I had a question from IIJA funding a lot of good content in the prepared remarks. And I think you noted 35% of the $1.2 trillion of funding has been announced. I guess, beyond transportation and now water and electric grid, how should we think about the release of those dollars to additional verticals? And how should we think about just kind of the potential tailwind that could be for you guys over the next several years?

Nicholas, could you fill that please?

Yeah, absolutely. So 35% of the product funding has been announced. And mind you there is a bit of a time gap between when it's announced and when it's awarded, which can range quite a lot from one project to the other. In general, it does take time to percolate down from the federal agencies to the state authorities and our own operators to the contractors. Most of it as for transportation as you noted and we explained in the prepared remarks, we see it coming now for water, we see it coming from electric grid. The biggest issue we see for electric grid unfortunately is the permitting process in the US, because it can take many, many years for a product to get started once you have all the approvals, all the permitting done. So this stage remains the main limiting factor right now in order to have investments in electric grid as an even stronger tailwind. Most of the activities we've seen for electric grid, actually all of them are about resilience of the existing transmission lines, analysis of their current state but it's not yet about expansion. When it comes to expansion this is when you need permitting this will be a significant additional growth opportunity.

Thanks Matt.

Thanks. Congrats on another good year.

Our next question comes from Kristen Owen from Oppenheimer.

Hi, good morning. Thank you for taking the question. I wanted to ask about your AI priorities just given the shift this year in capital allocation. Can you help us pick some parameters around what you feel Bentley needs to itself -- versus partner versus maybe acquire and some of the priorities that you've outlined. And just as a related follow-up remind us with the success of the cell tower business over the last three years, just what those unit economics look like as an ongoing AI business model? Thank you.

Greg, we cannot hear you.

Yeah, Greg. You're on mute.

I'm sorry. I realize I'm also invisible, which we're working on here. But Nicholas maybe you can speak to the first part of the question and then I'll talk about capital allocation, and asset analytics.

I will be happy to. We see two main use cases for AI in the infrastructure sector. The first use case is actually asset analytics where we use AI to understand the exact physical condition of an infrastructure asset in its context. We can detect any corrosion, any crack, we can detect vegetation and we can trigger engineering workflows based on this. We can also trigger by the way commercial workflows to understand the full utilization of a cell tower and if there is space for more equipment if necessary. These are the -- this is the first use case for AI in infrastructure sector and it's quite advanced. And then, Greg can talk about the kind of financials we see there. But the second use case, which is also quite promising, is the use of AI, when it comes to design and using AI as a copilot for engineers to be able to do more. I mean that engineering resource capacity gap that we talked about is indeed widening. We're simply not as a full ecosystem, not creating enough engineers fast enough to cope with the demand. So it's all about making them more productive. And we think, AI has a tremendous potential to make them more productive. And here our investments are around site and engineering using AI to automate the proposal of site layout to automate doing production. It's still very early stage. We're very much at the cutting edge here, but we're working together with a lot of representative users, a lot of representative accounts. We are fully endorsing the direction given its potential. Now, across both AI for Asset Analytics and AI for Design, there is a true platform opportunity. At the most fundamental level, it's the digital twin platform. When we do AI analytics, we actually create a digital twin of an infrastructure asset. When we power infrastructure engineers to do better design through [indiscernible] capabilities, we also leverage digital twin technology. So across both, we have the iTwin platform. And then, when it comes to Asset Analytics specifically through our investments with iTwin Ventures, our corporate venture arm, we have looked at so many companies in that space and we realize, there is definitely a lot of redundancy. They all build the same capabilities over and over again. So we see a clear platform opportunity for us on top of Digital Twin technology in order to do Asset Analytics.

Well, I'll only add that Kristen and I realize it's been three years since I talked about the cell tower opportunity as a forerunner, for what should become digital twins in every infrastructure asset type. And the AI has gotten better and better and the value has gotten more and more over that period of time, but the business has had the fits and starts of the tower cos wanting digital twins, but their own ecosystem of providers in their own internal enterprise systems not being ready. So that has come and gone to where what's going on now however is it's in prime time with the household main providers of broadband infrastructure on board with this potential as they remake 5G networks. And our role is behind the scenes provider of the AI and the AI processing and reality modeling and we're generating three digits per tower and participating in procurements that will help institutionalize finding. So you will have taken – rest of this year on top for three years, but he's forerunners to become – to establish the potential of Asset Analytics on very much the believer that we're at this starting point now.

Thanks, Kristen. Our next question comes from Clarke Jeffries from Piper Sandler.

Hello. Thank you for taking the question. Greg I'm reflecting on your comments about no longer being able to rely on user volume growth and maybe an expectation for longer-term application accretion expansion. Are we at the point where you expect that to be a pretty linear cadence each year? Or is this a comment about the longer term that you'd expect continued expansion? I'm trying to File Thank you for taking the question. Greg, I'm reflecting on your comments about no longer being able to rely on user volume growth and maybe an expectation for longer-term application accretion expansion. Are we at the point, where you expect that to be a pretty linear cadence each year? Or is this a comment about the longer-term that you'd expect continued expansion? I'm trying to understand, if we're at the point where user growth is not growing net per year or if we're trying to increase the monetization up level of the individual employee with the application mix as soon as 2024?

Well, first I might say that our observation about user volume is particular, where we see it most in the E365 universe, where we literally charge for application day. And it's those accounts, the large ones that have the latest data. We saw one out of every 10 positions is open and they face retirements faster than they can add new colleagues. So they're literally emphasizing workflows that save user days. And we're delivering those through blueprints and more specialized applications. I think that can inflect even faster because the – these firms are the same ENR, top firms who spend 1% of what they build on software and realize it will be smarter for them to have more productive hours and that's the only way for them to grow their business and meet their backlog. So I don't think it has to be only a linear progression from what is spent now per infrastructure engineer to what could be spent and is already spent by other types of engineers on software. We've been talking about that comprising our TAM if you like for a long time. And it's – the pressures are causing it to accelerate now I think.

Thanks, Clarke. Our next question comes from Jason Celino from KeyBanc.

There we go. Good morning.

Hey, Jason.

Maybe one for Werner, does 10.5% to 13% ARR growth guidance for the year, I know you mentioned it a wider than normal range but any way to unpack like what that headwind is in China, the lower maybe M&A contribution and then the third piece that was mentioned in press release?

Yes. Well, on acquisitions we had 100 basis points in the outlook in 2023. And we just expect that this is coming down from that level. Actually we have in 2023, the contributions were less than 100. We were at 70 basis points in 2023 and 2022. And so we're taking expectations down also underline what Greg mentioned. Between China lower escalations. We don't really want to break it out clicking down further. That's a right range of potential outcomes. And satellite momentum for our key growth drivers is very consistent, micro trends are pretty consistent. And there's incremental upside from the asset analytics business that we talked about. So it's a wider range of outcomes.

Okay. Great. That was helpful. Thank you.

Thanks, Jason. Next question comes from Michael Funk from Bank of America.

Hey, good morning. How are you doing? So Greg, thank you again for all the color on digital twins really helpful. And good to hear the updated commentary on the tower business. As we're thinking about how that business scales, it'd be helpful though to get maybe some more metrics there. So Greg, there might be approximate about 160,000 towers in the US, for example. Can you give us a sense of how many towers you're actually servicing today and how that's ramped the last couple of years? And a related question, are the tower construction companies like MasTec are they also a gating factor is the telecos might have contracts with them for maintenance? So something about how quickly that business can ramp based on those factors?

Well, I think it's mainly a business for the existing towers. And our subscriptions have gone up and down over time, based on the preparedness of the ecosystem to manage the Digital Twins. The business it starts the year in seven figures of ARR. I'm very confident, we'll end the year in eight figures of ARR, but there are very sensitive procurements going on at the moment that preclude me saying, more than that. I believe there is equal opportunity in Blyncsy, which is a -- which is proposing the crowd source based AI for maintenance condition detection, which can run every day or multiple times per day, to multiple of our DOTs and we can make that -- those AI insights even more valuable by relating them to the ET and the IT regarding maintenance. It's very exciting to put them together. We will have -- Michael, I think a quarter from now, a full announcement with a new name and so forth for that business. Right now, we're busy winning it we'll get to communicating more about it over the course of 2024. Q – Michael Funk: That's great. Just for clarification, Greg. From the tower business, you're charging per asset and then for the Blyncsy’s business you're charging per mile. Can you give us a sense of the economics there? I mean what you charge per tower monthly, quarterly, annually and the same for the Blyncsy’s business?

For tower it's three digits per year, per tower and we have standard pricing. For roadway mile, with Blyncsy it also is a standard pricing, but it depends on which AI insights you want and how frequently you want them. But we're trying to make all of this standard price book. We want to have many partners selling for us the engineering firms to be offering this to their owner-operator, accounts where they can add their proprietary analytics on top of ours and where they won't have to worry about doing the back office processing, because we're going to be very proficient in doing that at scale and economically and at high quality. Q – Michael Funk: Thank you. That’s all very helpful.

Thanks, Michael. The next question comes from Jay Vleeschhouwer from Griffin Securities. Q – Jay Vleeschhouwer: Hi, good morning. Thank you. Greg, in your comments about the 2024 developments, you noted the asset analytics. So the question there is -- would you put that in the context of the industry solutions concept you've spoken of previously for example at YII? And if so, could you speak more broadly about some other critical product deliverables that you foresee for 2024? And is there any reason to believe that customers might be more inclined to adopt new technology these days, more quickly than they might have in the past?

Well, I think everyone is conditioned to say what can AI do for me now? And that's the difference with asset analytics is we want an instant on entry point so that you don't have to say, well, you start with the whole concept of digital twins and that's from the beginning of the life cycle and so forth. If you take the example of Blyncsy with crowd-sourced imagery, you can have it the next day. There's not even any special surveying that needs to be done for that. I would say, the principal difference from industry solutions is here with asset analytics. We really have an ecosystem in mind. We're trying to beat the platform to be ecosystem friendly, so that the ecosystem can get into this AI opportunity without having to start from scratch, with bringing together the ET and the IT and the OT. And then we want to come to market primarily through ecosystem partners so either our maintenance organizations or engineering firms or the types of partner that Michael mentioned. So, the whole thing is how can you get into this opportunity now, because owners are aware and interested now. The term AI has aroused them to say there probably is something that can -- for me to start with -- right now to start with, and that's the difference.

Thank you.

Thanks, Jay. Next question comes from Matt Martino from Goldman Sachs.

Yes. Good morning. Thanks for taking the questions. So Greg, you called out a potential displacement when -- in SMB from perpetual license, which I believe has been kind of a multi-quarter trend here now. So can you perhaps talk about what's kind of driving this proclivity towards licenses and SMB and the extent to which this is benefiting broader SMB momentum and competitive takeouts? Thank you.

Well, Matt, it's really interesting. Our license sales went down year after year after year determinably because, of course we refer subscriptions. It's clear why in China, if they're worried about Americans being able to continue to do business with them, they prefer to buy a perpetual license now, and Nicholas saw that for himself first hand in December. But over an SMB, we all scratch our heads a bit, why would you prefer a perpetual license? As you know, our competitor doesn't offer a perpetual license. So that's the reason to call the competitive differentiator. And the anecdotally, what we hear from those who, then it's 400 of them, new logo license purchases SMB in this quarter, and they say, the sun is shining. Our business is good. We'd rather buy our software now and be able to continue to use it for multiple years. And we say that's a different way of looking at the way you would trade off discounted cash flow and so forth, if you're a sophisticated large business. But let's not dictate to them how they should look at their choice of acquiring technology, let's get on with it. So, it's a good opportunity for us. It's not large in the scale of our overall ARR, but we hope to continue to grow these new logos forever into our conventional enterprise programs.

Thanks, Matt. Next question comes from Joshua Tilton from Wolfe Research.

Hey, guys. Can hear me?

Yes.

I just kind of have a bit of a high-level one. But I guess if I step back, it sounds like you guys are focusing more on new logos, you expect less contribution from M&A than you have previously. You called out a strategic realignment and there's a bigger focus on perpetual. So what I'm just trying to understand is there like bigger changes in strategy going on under the hood? Or am I just reading too deeply into the commentary that you guys gave us today?

No I think it's stay the course on what is working very well. We concluded the year with our ARR growth at which we particularly chase and measure at our all-time high watermark except for China where we're purposely changing the business for the reasons we just mentioned. It's just that we'd be glad to grow faster with these AI opportunities and the digital twin opportunity has been hanging around NanoAI gives us this entry point. And back on SMB, we just become more convinced every year that we have been -- we've neglected that potential in the market and we're very excited about that now. Just our overall strategy Josh as we commit to improving our operating margins including stock-based compensation by 100 basis points per year. But subject to that we want to grow ARR as fast as we can. And the ideas you just mentioned are all timely and ones we can act upon during this coming year. In M&A you see that we only spent $38 million last year including DC investments. We are going to focus in particular this year on opportunities in asset analytics. We may not find them. We hope we do. If we do we want to do right acquisitions like Blyncsy. Blyncsy was an opportunity that came to us as a potential VC investment. And we want to incorporate and consolidate those and have this platform advantage and be the back-office provider of the AI and reality modeling processing at scale. Because we think it's difficult otherwise for organizations that have good proprietary analytic capabilities, but don't have the resources to provide an experience back office and we're going to get very good at that. So I know I'm bubbling over with what's new and exciting and interesting, but it's not a substitute for what's growing better than ever in the mainstream business.

Super helpful. Thanks, guys.

Thanks. Next question comes from Blair Abernethy from Rosenblatt.

Thanks. Just turn on

We can hear you Blair.

Okay. Great. Sorry trying get the video on. Thanks for doing this. The -- just back on the IIJA for a second if we could. Now that we're sort of 35% of the projects sort of announced is there any -- what sort of trends are you seeing in terms of what the DOTs are doing? Are they -- are they standardizing on their software? Are they going project by project and making the decisions in that way? Just kind of want to get a sense of what the competitive aspects have been looking like now that this has been 1.5 years or so into the process.

Well, there -- most are standardized in terms of what they use on Bentley software. On the other hand their supply chains are at full capacity and they're beating the bushes. It's something to say about the DOTs is they're spending more state money as well along with the incremental federal money. I think the state money is up 11% year-on-year. And that taxes everyone. And some of the new logo opportunities for us are civil engineering firms that primarily have done site engineering in the past and they are now gravitating toward roadway. All hands are needed on this for the reasons we talked about the demographics and the shortage of users and user days in the US, especially but the -- I think the main picture is higher for longer rather than higher. They can't be in transportation any faster than it is at the moment. Nicholas, do you want to add something to that?

I would say, DOT is leveraging IIJA to accelerate what they were already embarking on, in particular, digital delivery, so using a model-based approach from design through construction all the way to operations. Now, as you know, there are multiple grant programs. One of them is called Smart, and Smart is to encourage or to help the DOTs pilot new technology. And what we've seen with the Smart grants are some DOTs leveraging that fund in order to do drone lead inspection and infrastructure assets. So going back to your asset analytics and the DOTs themselves are leveraging technology to automate inspections.

Just overall, when we talk about accelerating and relatively faster, it isn't necessarily faster than the rest of the world. It isn't necessarily faster than -- these are organizations that are that have a long legacy and lots of enterprise constraints and their own challenges for talent and so forth. But the appetite is greater than ever. 4D construction is one of this year's big priorities for us and them. So lots going on, but it's needed.

Great. Thank you.

Yes.

This will conclude the Q&A portion. Werner, do you want to touch on [indiscernible]?

Yes. One more comment on ARR seasonality. So, we had our last programmic acquisition with meaningful ARR contribution was EasyPower in 2023 Q1, which -- at the end of Q1 will drop into the trailing 12 months baseline. And then, we had a larger portion of our E365 accounts that just had the floor resets in Q4. They will work the way through the floor into the usage area throughout the year. So, we expect Q1 to be at the seasonal low for us in terms of ARR growth and then, we go way up as we go through the year. So, just in terms of ARR seasonality.

All right. So, that concludes our call today. We thank each of you for your interest and time in Bentley Systems and look forward to updating you on our progress in coming quarters.

Thank you.

Thank you.

Cheers!