Good morning and thank you for joining Bentley Systems' Q3 2024 Results Webcast. 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 November 7, 2024, regarding the future results of operations and financial position, business strategy and plans, and objectives for future operations of Bentley Systems Incorporated. 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 November 7, 2024. After our presentation, we will conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley.

Good morning, and thanks to each of you once again for your interest in BSY. Compared with the remit of CEO, Nicholas; and CFO, Werner, who will follow today, my perspectives as Executive Chair by rights would tend more towards qualitative and longer-term considerations. The progress we're reporting for this inaugural quarter after completion of our generational succession underscores my confidence in raising our sites in these respects. Hopefully, you will have viewed these worthwhile and concise keynotes presented at our annual conference in Vancouver last month. And if not yet, please do follow the links here. In any case, I defer to Nicholas to summarize the directions and developments which he and his team shared, I thought more effectively than ever. I likewise recommend the supporting Going Digital award finalist project presentations, each a compelling case story describing and quantifying how our digital advancements together are helping to surmount the infrastructure engineering resource capacity gap. My own role this year was in selecting the very deserving founders' honorees for this year and recording presentations to explain why, which you can find here. 2024 Q3's progress toward our targeted ARR growth trajectory for the year goes beyond the commendable quantitative gains, which Nicholas and Werner will cover. As we charted in this year's early going, as the proportions under E365 and then subject to annual floors and ceilings, deliberately increase year-over-year ARR growth will naturally ramp somewhat more throughout each calendar year. Usually now for multiple years, we and our enterprise accounts have constructively agreed to contain and exchange the potential extremes of their consumption volatility for a predictable and mutually satisfactory range of visibility. The purposeful advantage of this for us and investors is that in each successive quarter now, we benefit from greater visibility and linearity in ARR…

Thank you, Greg. In early October, infrastructure leaders met in Vancouver for our Annual Year in Infrastructure Conference and Going Digital awards. This event is without a doubt a highlight of the year for Bentley. The extraordinary work that our users accomplish with our software is both inspiring and humbling. Their product stories bring into focus how we connect with our purpose to advance infrastructure for better quality of life. It just so happened that YII coincided with my 100th day as CEO. During my first 100 days, we unveiled ambitious strategic moves that will help propel our future growth while delivering strong quarterly results. In September, as Greg mentioned, we acquired Cesium the foundational open platform for creating 3D geospatial applications. Since we launched iTwin more than five years ago, we have learned that a 3D geospatial view is the most intuitive way for users to search for query and visualize information about infrastructure networks and assets. Combining Cesium and iTwin technologies enable developers to create astonishing user experiences that help infrastructure professionals make better informed decisions in full 3D geospatial context. Cesium's Founder and CEO, Patrick Cozzi, has joined Bentley as our Chief Platform Officer, and he is leading the development of the combined Cesium and iTwin platform offerings. At YII, we announced a strategic partnership with Google to bring Google's unmatched geospatial data and capabilities into Bentley software. The partnership complements our acquisition of Cesium and it is worth noting that Google uses the 3D Tiles open standard created by Cesium. Users will be able to incorporate Google's photorealistic 3D Tiles into their digital workflows to enhance our users' experiences even further. Bentley Asset Analytics was another strategic announcements we've made at YII. As you recall, we previewed this exciting opportunity on various calls earlier this year.…

Thank you, Nicholas. We are pleased with another consistent and strong quarter. I'll start with our revenue performance. Subscription revenues grew 12% year-over-year for the quarter and year-to-date in reported and in constant currency. With the backdrop of favorable end market conditions, our E365 and SMB initiatives continue to be solid contributors to our subscription revenue growth. On a year-to-date basis, subscription revenues now represent 91% of our total revenues, up from 88% in the prior year. Perpetual license revenues for the quarter were $11 million, down $0.5 million year-over-year. Perpetual license sales make up only 3% of our total revenues and will remain small relative to our recurring revenues. Our professional services revenues for the quarter declined by $3 million, down 14% year-over-year or 15% in constant currency driven primarily by the previous discussed delays in IBM Maximo related implementation and upgrade work within our digital integrator cohesive. While we do see pipeline improvements and retain our readiness to execute, we currently expect that we won't see meaningful revenue improvements until late in 2024 or early 2025. As we mentioned earlier this year, an opportunity introduced by the version upgrade delays we have observed this year is that we are now better positioned to also offer our accounts to transition from on-premise solutions to our hosted managed services for Maximo, facilitating eventual integration with our iTwin environment. While our mainstay subscription revenues continue to exceed expectations, the reduction in cohesive professional services for Maximo curtailed our growth in total revenues, which were up 9% year-over-year for the quarter and year-to-date in reported and constant currency. Moving on to our recurring revenue performance. Our last 12 months recurring revenues increased by 11% year-over-year in reported and in constant currency and represent 91% of our total last 12 months revenues. Our…

Thanks, Werner. Today, for the Q&A portion of the call, we have Greg and Werner, of course; and also Julien Moutte, our Chief Technology Officer, to help fill in for Nicholas. [Operator Instructions] Our first question comes from Joe Vruwink from Robert Baird.

Hi Greg, thanks. Good to see you all. I want to ask about the Year in Infrastructure Conference. There was a lot of detail about how Bentley is embedding iTwin capabilities across the product portfolio and sounds like the next phase of effort is AI capability across the portfolio. Should investors view these actions as strengthening the core products we all know today, so you still have a big TAM that you can further penetrate. Are these efforts meant to accelerate that and progress that or are you thinking about some of these things as actually bringing new products, new monetization opportunities and so it's going to be incremental to the products we all know today.

Well, the asset analytics portfolio announced at year-end infrastructure is the incremental opportunity to charge per asset per year for AI-enabled twin sights, if you like from instant on Digital Twins. But as to our main state portfolio, I might ask Julien for his answer, and I want to thank Julien for helping fill in for Nicholas, who is attending a family bereavement today. And Julien, perhaps you can talk about the intention with respect to the mainstay products.

I'd be happy to. So the answer to your question is both, right? We see that in the existing line of products, the capabilities of digital twins are going to allow a stronger interoperability between the different applications of the portfolio. And then this will create a foundation to apply AI to unlock new outcomes and new features in those products. These products will be strengthened by those new capabilities, delivering additional value to our users but also the data continuum that is created between all of our products portfolio by this integration through our platform is also going to allow us to explore new offerings to those users potentially opening new opportunities for products and monetizations.

Thank you.

Our next question comes from Matt Hedberg from RBC.

Hey guys, good morning. Sorry, I was trying to unmute myself. I appreciate the time, as always. Let's see, so one question. I'm wondering, you've had really consistent growth this year, and I know you're not offering '25 guidance yet, but I guess for any of you, when you think about growth drivers into next year, it seems like IIJA funding is still very early. I'm hearing some positive things from PLS out there as well as E365. And even it feels like maybe China headwinds could become less of headwinds next year. Could you kind of talk about structurally how you think about growth next year in terms of some of the most important things that you're sort of prioritizing as we sort of like get closer to year-end?

Well, in general, I agree with you that we don't have reason to expect next year to look very different than this year in material terms, and the building blocks will remain the same for the coming year. Certainly, the project backlog and momentum continues globally. I'm not so sure about China. But at least it has become less than eventually you would think would approach an asymptote as ARR becomes unfashionable there. And our asset analytics, wildcard could take off yet further but overall, these things are likely to balance out and we're -- we would expect generally a year, next year that would continue to be and consistent with our expected long-term framework of low double-digit ARR growth and of course, we can count on us adding 100 basis points of margin annually. And we're generally enthusiastic because each quarter of this year has represented more visibility and greater linearity and unfolding just as we have thought. And as Werner mentioned, even a bit above what we thought for the third quarter. And we don't see why next year should look rather the same as a year in the whole, and we're not able to talk about seasonality, we'll get to that as it comes close.

Great, thanks Greg.

Yes, thanks Matt. Next question comes from Siti Panigrahi from Mizuho.

Hi, this is [indiscernible] joining as Siti. We're also thinking on the uncertainty past U.S. elections, as you look forward, so one of the things everybody has been talking about and even some of your peers have talked about it that inherent in elections, there's an uncertainty and pause in people's thoughts. So we're curious in terms of how lifting that uncertainty trends going forward, do you see any changes in people's sentiment over the next few months in terms of bringing new and large projects to market?

Well, of course, in the U.S., we've had, in general, the greater visibility afforded by the IIJA multiple-year program. And by the way, its way of doing things is two-year advance appropriation. So there is considerable visibility in that. The infrastructure engineering community in the U.S., of course, studies government expenditures and likelihoods very closely and has had experience with the administration that will come into, come in here again to be inaugurated in the new year and has been rather unconcerned about changes and more concerned about doing more with less going digital as they're at their resource capacity. But as to the U.S. elections generally, I would like to think that all substantial businesses would be excited about an administration coming in, whose priority is economic growth. And the reason for infrastructure investment, of course, are resilient and economic growth. And I think you're right that the -- from a federal government standpoint, the project mix is likely to change over the course of this administration, there'll be less of an emphasis on both the transit on electric vehicles and so forth. But overall, they're more likely to be, for instance, a block grant to the states to set their own priorities. But infrastructure is a bipartisan priority in the U.S. and it should be. What is particularly exciting for us is the likelihood now, I would use that word, of permitting reform that will finally accelerate the opportunity for energy and electric grid transmission investment that would benefit us. But we have a broad portfolio. So, the changes in project mix are going to be taken, we can take that and try.

Great, thank you.

Thanks. Next question comes from Clarke Jeffries from Piper Sandler.

Oh, you were taking questions. Given the dynamics around how ARR pans out for you and the contract structures that you've created for the visibility and predictability of the business I wanted to clarify on that net new ARR number, whether there was any meaningful contribution from Cesium. It sounds like there was some exceeding of expectations on sequential ARR growth and even some of the metrics that we have that are trailing 12 months in terms of expansion look promising, but wanted to get a little bit more of an unpacking of that net new ARR number is more indicative of contract structure or really encouraging bookings in this sort of 3Q.

I want to respond to the word meaningful. I think Werner would say Cesium's onboarded ARR is not meaningful from a financial magnitude standpoint, especially it doesn't show up in ARR growth appreciably. But I think it's meaningful from a strategic standpoint because of the hundreds of thousands of users of open source platform, the pace of those opting into the paid Cesium ion version is pretty notable and satisfactory and it's on a good and steep curve. And I think that's meaningful. It's new for us to think about an open source business and how it grows, but the ARR aspect of that is meaningful and portends well, although that doesn't, it doesn't show up much in magnitude on our scale yet. Werner, are we saying anything more than that?

I think that's spot on. What I want to point out is like that our contract-based organic performance was at 11.5% and 12% ex China on a 3- and 12-month basis, which, as I mentioned like it is, at least at the level where it was a year ago and then this is bottom-up contract base and not impacted by onboarding from programmatic acquisitions.

Well, thank you very much.

Thanks Clarke. Next question comes from Kristen Owen from Oppenheimer.

Hi, good morning. Thank you for taking the question. Similar tack here, but I wanted to ask about what's driving the SMB growth, 11 quarters consecutively of 600-plus new logos? What's contributing to the success of that product category? And as it relates to Cesium if you view that platform maybe being a TAM expander or opening up to some new customers who were not previously familiar with Bentley Systems.

Actually I hadn't thought about that connection much, Kristen, until hearing your question. I suppose the Cesium subscribers since they come on at zero ARR to start with are the ultimate example of digital engagement. So, digital engagement is quite the story with, as we say, Virtuosity. Our Virtuosity subscriptions that we are primarily offering to SMB and every quarter, it's more digital, lower touch and so forth. And it's just apparent that the market is deep in terms of SMB firms for us to reach as they are more interested in investing in the direction of horizontal infrastructure, proficiency and so forth. And I think that has become rather institutionalized in our way of thinking. But just more generally, I'm excited about our new management, our succession generationally succeeded management having a more open mind to such opportunities. And for instance, Cesium is a bold acquisition both to go after, if you like, younger colleagues and a younger stage of take-up of digital trends as we're describing here that could add to our TAM because it's more, it's a broader swathe of the world. And I remember we hadn't focused on SMB or e-commerce at all prior to being public. And I think we're getting our legs under ourselves now and Cesium to your point reinforces that.

Thank you.

Thanks Kristen. Next question comes from Jason Celino from KeyBanc.

Great. Did I freeze there. Can you see me?

Well, we hear you fine, Jason.

Okay. Great. Well, a few quarters ago, you sounded pretty optimistic about seeing some water infrastructure funding start to flow. I think since then, we've seen a few new regulations by the EPA to drive utility operators to leverage more software to upgrade facilities to filter out certain PFAs. Have you seen an uptick in kind of water infrastructure demand because of this or is this more of a longer-term opportunity? Curious what you're seeing on the water side?

Well, water is something that going to be long term, more and more important than there is nothing political or partisan about it. We have seen uptick in order but it's been global, to my knowledge, I don't know that it's any more so concentrated in the U.S. of late. And I wonder if you know, Julien or Werner, but water is on a high end of growth rates among our sectors. And the good thing about that is there's no reason that, that should be a short-term phenomenon at all.

It's correct. It's more globally, as you said.

Okay, good stuff, thank you.

Next question comes from Jay Vleeschhouwer from Griffin.

Greg, thank you, good morning. I'd also like to follow up on some of what we talked about in Vancouver last month, specifically with how customers benchmarking or selection criteria may be changing. In other words, are there new functionalities or capabilities that you need to demonstrate incrementally now as part of customer benchmarking or pilots that you're engaging in. For example, the customers now begin or might they begin to make their decisions horizontally based on your platform or do you think the decisions will be made based more on the stack, the applications and functionality level?

Well, I'm going to answer that. My impression, as Julien was suggesting, is that they're quite interested in this horizontal data accessibility of the platform and our understanding that their data is going to be their advantage with AI in training their tools for the future. And this question of openness and commitment there is something they are explicitly assessing. And of course, we welcome that. Julien, perhaps you've been involved in some of those questions in benchmarking and could add to my impression.

Indeed, in the comments we heard from CEOs at different engineering firms, one of their top priority is data management and how to make sure that the data is made available to the engineers to achieve new outcomes using these technologies, but that comes as a secondary problem that first needs to be, the intelligent data management is at the top of their priority. And this is one of the key reasons why we're insisting so much on our open approach to make sure that as they make decisions for their technical solutions and platforms that they decide to use a platform that is going to provide that intelligent data management while not standing in their way. So the importance of integrating those capabilities into our products in a simple way, but is not disruptive to their workflows and then allowing them to leverage that data for those future benefits. So I think the openness is really a strong point, which we've heard in multiple conferences, which I guess you have attended as well like [indiscernible], for instance and I think we'll hear this more and more.

Thanks, Eric.

Next question comes from Michael Funk from Bank of America.

Hey, guys, thank you again for the time this morning. Greg, you opened up by talking about having better visibility, linearity into results. And then you talked about kind of one part of the business and the contracts and the floors and the ceilings. But does that clarity extend beyond that piece of the business? I mean are there other priorities for you to improve visibility and revenue growth, improved linearity, whether divestitures, acquisitions, change in business model that you've contemplated?

Well, the floors and ceilings in E365 are front of mind because that's now the majority of our ARR and the majority of E365 is the majority of ARR are about to be and the majority of that has the floors and ceilings. And each such negotiation, we and the account are considering the future. And everyone is so enthusiastic about going digital, that pacing it in a way over multiple years makes sense for them and for us, it's really striking that stepping back from my vantage of so long at the helm here, never have we had the quality of visibility and linearity that we have now as a result of this. But hang on, I sort of think that rather than say, well, how can we extend that to the rest of our business. We're more inclined to say, okay, but think of our incentives each year. We want to improve our margins by 100 basis points. But subject to that, we want to grow as fast as we can and now that we have likewise improving our linearity and visibility every year. Subject to that, how can we grow faster. And that would speak to opportunities that were availing like the acquisition of Cesium like the asset analytics that it facilitates where we can get a tiger by the tail and win some of these bigger procurements for instance, on digital twins and asset analytics. And ideally, I know, as I mentioned, it brings in lumpiness and so forth, but we're balanced with the improved visibility of the mainstay business, perhaps that will be a good mix. I would like to see our new management, I'm glad to see our new management, I'm excited to see our new management going forward with some of these big opportunities, of which the Cesium acquisition is represented.

It's very helpful. Greg, one more if I could maybe for actually all of you wants to kick in. But I don't want to imply that digitization asset life cycle management is a partisan issue, but it does seem as if Europe has led the way from my perspective, on moving forward digitization, asset life cycle management. Do you sense any daylight between the parties' views here in the United States on those priorities?

Well, in general, as you might know, I look forward to greater private investment than infrastructure because going digital is the greater priority when there's private investment. In the U.K., for instance, you refer to Europe, but the U.K. Government is a new government that campaigned on limits to public spending, but now since taking off as I said, on the other hand, for infrastructure, for rebuilding Britain, we need to spend more and we invite and encourage private investment. I know it wouldn't seem that that's a natural bedfellow with our new administration in the U.S. but doing more with less, greater emphasis on digital, there is upside for us to learn in the U.S., and we look forward to the opportunity for such engagement at the new federal level in the U.S.

Great, thank you all.

Thanks Michael. The next question is from Dylan Becker from William Blair.

Hey guys. I appreciate the question here. Maybe for Greg and Julien, as you think about kind of the expansion of the ecosystem and interoperability of the platform that we just talked about, would love to get your sense on how you're thinking about the evolution of kind of the partner channel and the opportunity there. I know we've called out a few on the geospatial side. But as you think about kind of the evolution of asset analytics, digital twins, partnerships feel like that could be a big enabler of leveraging kind of the data more effectively. I would love to get your kind of general sense on that.

Well, I would say how about Google as a partner, who on the one hand, tremendous cloud and AI capabilities, but they have this data that we can help to apply in this specialized realm from their standpoint of infrastructure engineering. So the partner spectrum is really interesting. And I'm very interested to have the engineering firms, as you know, are long term, become the digital integrators for the owner operators and part of our cohesive investment is to get smart about plan. It's a long-term investment. We don't have to speed it up. We've kind of slowed down this year a bit, and that's okay because it's long-term. And Julien, as far as the ecosystem openness and Cesium, cesium has tentacles everywhere. It's the household name in immersive geospatial 3D tiles and helps us with lots of more surfaces of contact. I think I believe that can help open up asset analytics opportunities, especially, but Julien, perhaps you've seen some of it.

Yes, indeed. And I think that the rich and lively ecosystem of application developers that already exist around Cesium is going to open a lot of new opportunities for partnerships. Now the platforms as we're bringing them together, are going to power a lot of ISVs and bundles to develop with and around our existing portfolio. And what we'll be looking at is trying to pick the meaningful partnerships we can do to bring new kind of data types, new kind of capabilities to the portfolio and the platform that will then unlock new kind of insights that we could then leverage with asset analytics, for instance, but also empower a rich ecosystem to strive on top of our application and existing user base.

Last question comes from Joshua Tilton from Wolfe Research.

Hey guys, can you hear me?

Yes.

Thank you for sneaking me in and I have been jumping around a bunch of prints this morning, so I apologize that this has already been asked. But Greg, I thought it was very interesting you talked about how your visibility, you feel like it's never been better than it is today. I want two follow-ups on that maybe. The first is, does it continue to trend in the right direction? And how do you think about that as SMBs become a larger portion of the business, where I would feel like maybe visibility around those businesses is lower. And two, how would you characterize your customers visibility into their businesses over the next 12 months? Are they equally as confident in their visibility as you are in yours? Because I would argue that, that feels a little bit more important given the type of business model that you guys are.

Well, Josh, we still are primarily enterprise oriented, and literally the bulk of our revenue comes from accounts spending $250,000 a year or more. And so under E365, the annual renewal now is a negotiation of that, how do you feel about the future. So we are in hundreds of these enterprise scale negotiations per year. And generally, they are in double-digit modes in terms of their expectations for what they think they should spend and will spend on digital tools increasing each year. So they're willing to enter into an opportunity to limit how extreme that can be and in turn, grant us a floor. So we do get lots of information that way about what their expectations are about the future, and it gives us the confidence we're expressing here today about next year and the foreseeable future. You're right that, that doesn't take in the SMB. Here in SMB, I think there is greater volatility. I'm sort of saying, Josh, I don't mind taking on some more volatility, given that the bulwark of our business has become through the E365 consumption in the floors and ceilings, a very visible, linear way of smoothing out quarters, although there may be a certain ramp because of the seasonal annual renewal quarter. But other than that, over multiple years, we have greater visibility, and we can take on some risk there for now, for instance, in SMB and asset analytics and our new generationally succeeded management are doing that well already, I think, and both SMB and asset analytics are examples of that. Going for things which can balance out our flywheel with potential for inflecting our growth rate upward, we're doing the right things, I believe, in that respect.

Super helpful and maybe just a very quick follow-up. If I remember correctly, I think even you guys were a little skeptical, the SMB opportunity when it started. Is that just out the door? Are we full steam ahead? And like does your focus internally like kind of shift with that view as well?

The skepticism is out the door with me, Josh, I'm exaggerating a little bit, but I'm very committed to direct sales model having in our history, been 100% indirect at another point in time. Remember, the direct sales model is one of the reasons we can be confident in our goal of adding 100 basis points to our operating margins each year because the cost of direct sales doesn't go up corresponding to our NRR, if you like. It has built-in economic leverage in scaling up. But the opportunity now is the SMB business is also a direct sales business with digital engagement. And so building out that tool set and apparatus and mechanism for self-service, we're just entirely enthused about that now, and are pretty far along on it still lots more to do. But we're dealing with engineers and firms small enough to buy something on their credit card and they being engineers, they really don't want to talk to a salesperson. They want to try it out, see it, exercise it and get some help which our Virtuosity subscription provides expert assistance and so forth. And it's just turning out to be welcome and having been institutionalized and I'm glad I didn't hold us back in my, it's another respect in which the fresh thinking is, has reinvigorated our company, and I want more of it going forward.

Super helpful, thank you.

Thanks for your questions. That concludes our call today. We thank each of you for your interest and time in Bentley Systems, and we look forward to updating you in the near future. Thank you.