Bentley Systems, Incorporated

Good morning everyone and thank you for joining Bentley Systems Q4 2021 Operating Results in 2022 Outlook webcast. I'm Kerry Mann, Bentley's VP of Investor Relations. On the webcast today we have Bentley Systems Chief Executive Officer Greg Bentley, Chief Financial Officer Verner André, Chief Operating Officer Nicholas Cummins, and Chief Investment Officer David Hollister. This webcast includes forward-looking statements made as of March 1, 2022, regarding the future results of operation 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 .bentley.com. After our presentation we will conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.

Hello. Stepping back to reflect on our first full year as a public company, feels to me that our Bentley is now running on more cylinders than ever. Back from intermittent pandemic disruptions to where not only BSOI but also our users and accounts have reinstated, if also redefined, business as usual. In fact, with confidence that after the pandemic, its impetus to going digital in infrastructure engineering will remain permanent, as the needed and now actual commitments to infrastructure renewal and resilience require increasing our accounts' workloads at the same time that they face limits in increasing their workforce capacity. With the emerging opportunity for infrastructure digital trends having been kick-started by the pandemic imperative for going digital to substitute for work on site. While at BSOI we have, since going public, significantly improved our -to-market execution both within existing enterprise accounts and to reach new SMB prospects. And finally, as we have completed platform extension scale acquisitions to fully address the world's unprecedented consensus ESBG priorities for mobility, environment and grids. Our tone of business discussions to date have centered around the contrasting color tones between the still cyclically curtailed capital projects in the industrial resources infrastructure sector on the one hand and the relatively impervious momentum in our mainstay public works utilities infrastructure sector on the other hand. Particularly as we have so much to cover today, it fortunately simply suffices this quarter to report that nothing has changed appreciably by sector. The EPC firm's application usage has not yet turned upward but has ceased to get any worse as they're essentially all on our E365 daily consumption program. They and we will benefit as soon as higher energy prices spark net new capex starts including for renewables and storage. Starting with operating results reporting for the quarters of 2022, we will break out from the traditional industrial infrastructure sector, our revenue apportionment for a separated resources sector where in addition to this renewable energy upside, Sequent is gaining vigorously at a pace unprecedented for us in the robust market for going digital and mining to meet the same energy transition demand. I think the most informative view of our overall business tone comes through tracking our book of subscription growth and net retention. Here is a view from before and through the pandemic of our reported ARR growth and of our reported NRR which as a comparison to a full year earlier naturally lags ARR growth by about the 2% of ARR growth which comes from new names each year. ARR growth suffered starting with the first quarter of 2020 as project stops in work capacity disruptions immediately affected our daily and monthly reset subscribers including the EPCs and that dip in ARR growth which lasted several quarters in 2020 is inversely echoed in the subsequent sequence of consequently higher ARR growth rates as all users went back to full time work. It seems a natural surmise that lagging NRR will likely continue to increase. To look inside these numbers, here again is the 21Q3 breakdown of ARR by consumption model. In 21Q4 our E365 ARR grew steadily in the proportion shown here including as we upgraded further accounts to E365 to reach this breakdown of ARR at the end of 2021 and highlighting our SMB accounts by our definition spending less than 100k with us annually. All others are at least eventual prospects for E365 for years to come at our measured pace of such upgrades. We offer E365 upgrades by invitation to selected accounts upon their annual renewals so that we can assure that we continue to have sufficient and appropriate enterprise success resources to deliver the included success services. In substantiating why these services make E365 so important to BSY and to our accounts, I will cite our annual measurement within ARR growth and NRR of application mixed accretion. We have tended to assess the pandemic affected tone of business in terms of days of usage of any and all of our applications, but we grow ARR as we add more value when a user upgrades their BSY application usage to a more specialized BSY application in order to improve the quality and productivity of their work. We annually calculate this application mixed accretion as the average daily usage value abstracting from any price changes across all application usage during the year. As we continuously develop and acquire more specialized applications for our comprehensive platform, I believe this advancement opportunity will be an endless progression. For instance, a civil engineer and user of MicroStation who is working on roadway projects will be much more productive upon upgrading to open roads, which more than doubles our ARR per such application usage day. The same civil engineer may remain a prospect to subsequently upgrade to our yet more specialized forthcoming open tunnel application. A wind farm designer who had been using MicroStation in the absence of a specialized modeling product should advantageously upgrade to our new open wind power application, increasing our ARR per such day of application usage by a factor of about 30. A structural engineer at an EPC firm now working on an offshore wind platform should upgrade from our general purpose structural analysis application instead to our specialized SACS offshore structural application to incorporate the analysis of wave motions, increasing our ARR per such application usage day by a factor of over 1.5. During 2020, our application mixed accretion was about 2.5%. I'm pleased to say that for 2021, our application mixed accretion increased to over 3.5%, a significant component of our increased ARR growth. I credit this to our user success organization's expansion throughout 2021. Our user success colleagues can apply analytics to our cloud-based functional logging of all application usage to identify these individual upgrade opportunities, to bring them to the attention of the appropriate existing users of our less specialized applications, and to help them to take full advantage. Most of the early growth in our user success force was as a result of transferring and consolidating from various other supporting functions our colleagues with substantive infrastructure engineering experience and credentials. Continued further expansion is afforded by the so-purposed upgraded ARR implicit in E365 daily application pricing, and therefore E365 accounts are most intensively served by our enterprise success teams. Validating our prioritization of E365 and this associated enterprise success resourcing, our 2021 application mixed accretion was almost twice as high within E365 accounts as within non-E365 accounts. And in terms of underlying overall application usage trends from 2019, so as not to dwell on pandemic-induced volatility, E365 accounts excluding the uniquely impacted EPCs performed significantly directionally better. Lastly, in working to establish a broad baseline for our enterprise accounts' general sentiment among those surveyed in both 2020 and 2021, the E365 accounts skewed toward much stronger recommendations in our favor. This slide originally from our IPO deck highlighted that such accretion within our existing enterprise accounts could reach two-thirds of this SAM to the extent that we could grow each account to the -S-Y run rate intensity we had already achieved for the most -S-Y run rate intensity accounts in each size tier within each of the project delivery and owner-operator categories. So, given these new initiatives in E365 and enterprise success since IPO, how far have we progressed in this run rate intensity in enterprise accounts? Starting with the top owners. The -S-Y run rate intensity for each is calculated in relation to the net asset value of their fixed infrastructure assets,

reflecting

our efforts to strengthen our offerings' life cycle and to provide comprehensiveness across infrastructure operations. From 2019 to 2021, the -S-Y run rate intensity within the B-I500 increased in constant currencies by 19%. Next, as to the project delivery accounts that are engineering news record global top design trends, the -S-Y run rate intensity for each is calculated in relation to their design billings reported to E&R, excluding Chinese firms where the history isn't consistent. From 2019 to 2021, their -S-Y run rate intensity increased in constant currencies, reflecting their rate of going digital in -S-Y spending per dollar of their own design billings by 12%. To conclude as to enterprise accounts, what I've covered are factors behind my belief that continued expansion of our E365 program and the enterprise success activities that support it will relatively improve our ARR growth rates. But what about our potential growth within small and medium-sized businesses, where our products are just as suitable, but we need to go to market in ways that are new to us? We commissioned market research firm, KamBashi, who had recently updated our TAM study that starts counting the world's infrastructure engineering professionals to help us quantify the SMB prospects. We determined to consider only project delivery firms, since owner-operators of infrastructure, given its capital intensity, can hardly be SMBs.

With

that, we next applied the typical -S-Y run rate intensity for project delivery firms to translate our cutoff of $100k per year to correspond approximately to firms with at most 50 infrastructure engineering professionals. What proportion of our potential market do such firms represent? Given limitations on available data, KamBashi could answer this only for engineering and architecture firms, and only for certain countries. So here are, by bubble size, the proportions of these infrastructure professionals in SMB compared to larger firms in Germany,

in

Japan, in South Korea, in the UK, and in the US. As you see, market structures evidently vary so much that one can't safely generalize across the world. But for instance, in our two largest markets, the US and the UK, and in total for these five countries, certainly representing much of the world, there are even more infrastructure professionals in SMB prospects than in enterprises. These results encourage us to continue the priority we have placed on the SMB opportunities since the IPO increased our profile and led us to focus more on marketing. During this time, we have reallocated much of our pandemic-caused cost savings and travel and events into SMB -to-market initiatives. In particular, see here our 2021 quarterly progression of staffing levels for sales and fulfillment of our Virtuosity subscriptions, which combine annual term licenses with expert availability and are targeted at SMB new business. The results were reflected in this promising trend of Virtuosity's new business growth by quarter during 2021. Most encouraging is the improving ratio of new business growth to headcount resources as we continue to climb the learning curve and reaching and converting SMB prospects. To summarize, here's our resulting progress in total annual NVG for SMB accounts, inflecting upward to represent now 41% of our overall NVG in 2021. This reinforces our belief that much more SMB upside is reachable. For more operational perspectives on our -to-market activities, with those responsibilities having been added for 2022 to his product leadership roles, over to Nicolas.

Thank you, Greg. We updated our product portfolio overview in the 10K report to reflect the important product advancements we made in 2021. We continue to build on the foundation and extend the comprehensiveness of our product portfolio. In particular, engineering applications with our modeling and simulation products for engineering practitioners, enterprise systems for engineering collaboration, construction, and asset performance, supporting digital workflows across the entire infrastructure lifecycle. Geo professional applications with a combination of sequent, original Bentley geotechnical products and subsequent acquisitions for the subsurface. Industry solutions with industry specific capabilities to advance infrastructure for mobility, environment, and grids. And at the center of our portfolio, iTwin, our infrastructure digital twin platform, powering an increasing number of Bentley and third party products. I would like to highlight the performance of Synchro in Q4 and through 2021. Synchro is our construction management solution, which we have extended to be uniquely suited for heavy civil projects. As you might recall from Greg's comments during the Q3 operating results, with Synchro, we're taking a distinct approach to construction. We have some peers who are focusing on automating 2D workflows, our focus with Synchro is on helping the industry advance to 4D by leveraging digital twins. The industry has validated our approach with accelerated growth in 2021 across the spectrum of construction organizations, including SMB. Synchro has been adopted so far by 58 of the ENR global 100 top contractors and by 77 of the top 100 contractors outside of China. Now let me take a moment to explain what we mean by 4D. Synchro powered by iTwin allows construction teams to create a 4D construction model by leveraging 3D models from the design phase and adding time, the fourth dimension. It is used for construction planning and scheduling to communicate with key stakeholders and collaborate with trade partners. It is also used in project execution to track progress as well as power construction teams with information and the context they need to make informed decisions. Synchro featured prominently at the Year in Infrastructure in 2021 with many winners of the Going Digital Awards crediting Synchro. I would like to highlight one winner. Replacing the aging bridge on East 138th Street in New York City may seem uncomplicated at first glance, but located one mile south of Yankee Stadium, it is in a highly congested area and the management of traffic during construction is a significant quality of life issue to the local community. The New York State Department of Transportation, the owner of the bridge, opted for a digital twin solution to manage the complex sequence of traffic lane closures. They used Synchro to create a 4D construction sequencing model and engage with stakeholders to take important decisions without having to work manually through more than 200 planned sheets. This project sets a new standard for what can be accomplished by DOTs by Going Digital. You can read more about this project in the 2021 infrastructure yearbook. From a regional standpoint, our new business growth continues to accelerate in Latin America, primarily driven by additional usage in our E365 accounts, in particular of open flows or product line for the water infrastructure. The new business growth also accelerated in Middle East, benefiting from renewed investment in infrastructure, including industrial and resources. And as expected, Australia and New Zealand bounced back in Q4, benefiting from renewed investment in both public works and in industrial. 2021 began as a difficulty on China, as mentioned by Greg in previous calls. We confirmed a strong rebound of new business growth in Q4, but not enough to close the gap for the full year. We take the long view in China. It remains an important growth opportunity for Bentley, given its massive investments in infrastructure. And the biggest projects in China continue to leverage our technology to innovate. Six of 19 winning projects of the Going Digital award in infrastructure were from China. A few words about Sequent now, which had a great Q4 and a great year 2021. Sequent had strong performance across all regions. The fastest growing region over this quarter was Asia Pacific. South America was its second fastest growing region, followed by Europe, Middle East Africa, and North America. In all these regions, Sequent benefited from continued investments in mining, required to support the world's energy transition. In addition to mining, Sequent's growth remains strong and civil. We expect that growth to accelerate over time as we continue to drive synergies with the rest of Bentley. With Sequent, we are offering the most comprehensive product portfolio for geoprofessionals. We completed four additional acquisitions in 2021 to complement that portfolio, the most recent one AR2Tech in December for geostatistics and spatial data analysis. LeapFrog, the original product of Sequent used to model the subsurface, led the growth in Q4. You can think of LeapFrog as a foundation product for geoprofessionals, on top of which we offer additional products to provide a better understanding of the subsurface. Case in point, we doubled the revenue for two acquisitions made in 2021, Imago to capture and process digital images of drill cores and chips, and MX Deposit to manage drill hole and other field data. In order to illustrate how these products come together, I would like to highlight First Majestic. First Majestic is a Canadian company which owns and operates four mines in Mexico and the U.S. First Majestic uses Sequent's LeapFrog geo to develop a realistic representation of the geology at each site and LeapFrog age to aid resource estimation. And when geological models are changed, resource estimates also change dynamically. Sequent Central allows the company to publish models and resource estimates so they're available to everyone in real time, on site or remotely, including resource geologists based in Imago, integrated with LeapFrog geo to make more confident, profitable exploration and mining decisions based on digital images of drill cores and chips. They are also using GeoStudio to evaluate the slope stability of taining dams and filter tailings, as well as Plaxis for deep excavation and tunneling analysis. This is just one of many situations that underscore the potential for portfolio expansions and synergies subsurface. Now I would like to hand back to Greg to talk about corporate developments.

Many thanks, Nicholas. And now on to corporate development, where I would also like to step back for the big picture. First, priorities we all share and need to track are environment, social and governance goals. Our new -the-art website here brings together everything you would like to know in one place. But our ESG website emphasizes that at .S.Y. we are almost uniquely able and motivated to go beyond what's conventionally reported. Our greater contribution is to empower infrastructure engineering through going digital to profoundly advance the UN sustainable development goals, which we also all share. My way of keeping this .S.Y. colleagues is to instead think in terms of ESDG. Infrastructure engineering is literally the limiting factor in achieving especially the SDGs highlighted here. So at .S.Y. we can assess our corporate development in relation to three ESDG priorities. Our business, our investments, and our current initiatives closely align with the advancement through going digital of the world's mobility, environment, and grids infrastructure by our users. So the most effective way to understand our ESDG handprint is to review our infrastructure yearbook, which annually presents our users' nominations for going digital awards, the finalists and winners judged by international expert juries, and our own founders, honorees. The physical 2021 yearbooks will be with you shortly, but here online you can now search, for instance, by each of these ESDG priorities and interactively view these multimedia case studies. The mobility priority has been our sweet spot representing the proportion of .S.Y. revenues for roads and bridges, rail and transit, and municipal engineering. But also within the green CAPEX funding needs that we have referenced in this way since last quarter, mobility is also the largest priority as it is within the actual funding allocation of the U.S. Infrastructure Investment and Jobs Act, the IIJA, which we also referenced in this way last quarter and which is generally representative of the new government infrastructure investment commitments everywhere in the world. Here are the going digital award winners in mobility categories, and here are the additional projects honored by our founders within the mobility priority. Please note their global diversity. Turning now to the environment ESDG priority, this also represents a very significant portion of our business, including along with water and wastewater, renewable energy generation, and sequence foundation for mining and for environmental modeling and monitoring. And within green CAPEX, the direct environment ESDG priority is of course significant as within the relevant segments within the IIJA. Here are the going digital award winners in relating to the environmental priority. Now in addition to these awards from BSY, I would like to highlight a project that resulted in a just announced award to BSY as the Microsoft Asia Pacific Region Social Impact Sustainability Changemaker Partner of the Year. The award recognizes the role of our i-Twin platform applied with Microsoft's Azure IoT services in deploying digital twins to improve the operations of offshore wind farms in South Korea. This work was done for Doosan, the company which develops not only the wind farms, but also the turbines themselves. As usual, we think the credit should go to Doosan, but like Microsoft, we are proud to empower sustainable development goals. Lastly, for the ESDG priority, this has already represented the portion of our business shown here prior to the just closed acquisition of power line systems. And within green CAPEX, the grid's ESDG priority is acknowledged as requiring very substantial new investment as indeed funded to this significant extent within the IIJA. Here are the Going Digital Award winners in grids categories, and here are the additional projects honored by our founders relating to the grids ESDG priority. I would like to reprise BSY's corporate development as a public company by updating these self-descriptive tiles that we've used in every introductory presentation starting with the Though Ray Bentley has now joined Barry Bentley in retirement after 38 years, during which Ray never took a sick day, our founders all remain board members and very enthusiastic shareholders as you can see from our control group's SEC finance. Our platform DNA has enabled our integrated comprehensiveness, starting with MicroStation as the foundation for our modeling and simulation applications, followed by project-wise and asset-wise systems respectively for project delivery and asset performance, and now the iTwin platform for digital twin cloud services, which has led to what I regard as conclusive market leadership in infrastructure engineering software for mobility. But for the overall environment ESDG priority, there had not been a conclusive such market leader until last year when our aware with all as a public company enabled us to leapfrog into this tremendous opportunity through our platform acquisition of Sequent, enabling the integration of subsurface modeling and infrastructure IoT monitoring, including for water, flood, geotechnical, and seismic environmental resilience across mining and all other infrastructure assets. The momentum and potential are both unprecedented in our experience. But the grid integration opportunity is by consensus the most urgent for the world to address energy reliability and the constraining bottlenecks in renewable generation, storage, electrification, and communications that jeopardize economies and quality of life. And here our platform acquisition of power line systems, also only possible as a public company, completes our existing platforms reach from transmission through substations to distribution and communications. This unparalleled constellation of our comprehensive portfolio for going digital across infrastructure engineering and now across all of the world's ESDG priorities supports our unprecedented confidence for 2022 and then beyond. I just don't see how we could be better positioned than we are now. Despite ebbs and flows of geopolitical and regional economic concerns, our geographic diversification and balance, especially strengthened by Sequent's complementary footprint, imparts more resilience than ever. Not only did we demonstrate dependable growth even through the pandemic, but we used resulting savings for the initiatives I've mentioned that are already increasing our rate of growth, including in our 2022 outlook. We saw that early pandemic disruptions in our users' work capacity somewhat reduced their consumption during 2020, with the knock-on effect of making 2021's -over-year comparison appear relatively more favorable. Our outlook for 2022 is to accelerate growth from the compounded levels since pre-pandemic. And in fact, from 2020 to 2022, we will add more than a digit, we expect, over 40%, to our annual revenues, mostly attributable to business performance, while also increasing our recurring proportion. In covering our tone of business, we quantified the increasing -S-Y spending intensity we're achieving in enterprise accounts at the same time as our new business focus on the ultimately, perhaps even larger, SMB opportunity. Now, a company can presumably grow faster by spending more to go to market at the expense of its operating margins. At -S-Y, our perhaps simplistic approach to this trade-off is to internally commit to one margin percent per year of expansion in our sustainable margins, normalized for non-recurring savings in excess of their reinvestment as in these pandemic years. Subject to this operating margin constraint at 33% for 2022, we will continue expanding the initiatives which we have concluded from experience I've cited are serving to increase our long-term growth while else being equal. This includes continued expansion of our user success resources, especially to support expansion of E365 for faster accretion in enterprise accounts,

and

also continued expansion of our SMB dedicated resources, supplemented by significantly increased SaaS and development expenditures, now that we're through our initial Sarbanes-Oxley systems freeze, on a new digital experience for the e-commerce self-service that SMB engineer prospects and users greatly prefer. By putting that all together, I now ask David to introduce our new -S-Y investment organization and activities, and then to introduce Bernard, his CFO successor, to go over our financial performance for 2021 and for our 2022 outlook.

Thanks. Thank you, Greg. I do plan to shine a spotlight on our recent Powerline Systems transaction and our immediate priorities for PLS. As a lead into that, let me quickly orient you to our -S-Y investments group and how we complement our core software business. Firstly, we continue to be quite active with our acquisition activities. Often those acquisition activities surface or onboard businesses that are ripe to be initially incubated and or accelerated outside of our core software business or as a complement to our core software business. We call these acceleration initiatives. Our -S-Y investment group also oversees i-Twin Ventures. Our corporate venture capital fund focused on stimulating an ecosystem of infrastructure digital twin applications. We also believe that digital twin adoption can be better enabled by an ecosystem of digital integrators and through our own cohesive group and our digital construction works digital integrators. I'll go a little deeper starting with acquisitions where I show here the chronology of a busy last 12 months in terms of acquisition activity. Our programmatic operating cadence of build versus buy yielded a robust pipeline of opportunities and continues to do so. We successfully closed 14 acquisitions during this period. Of which 12 of them were of the programmatic nature the smaller tuck-in deals that are a part of that operational rhythm I've described and it was also a year where we successfully closed on two particularly noteworthy acquisitions which for us represent a new platform and or are of a uniquely large scale as to be differentiated from our normal programmatic acquisition activities. Specifically that would of course be Sequent which continues to perform very well as you heard from Nicholas and we'll hear from Verner and Powerline Systems as Greg just discussed. You will have also heard Greg describe our perspective on what he calls ESDG and each of our 2021 acquisitions is consistent with our key ESDG growth themes either mobility environment or grid. The scope of our investment ambitions starts early and extends through maturity in the life cycle of the business. With our open source i-twin platform we offer developer tools, support and partner programs to entrepreneurs and businesses at all life cycle stages. As mentioned at the end of 2020 we inaugurated i-twin ventures our corporate venture capital initiative whereby we're committed to invest up to 100 million dollars to help stimulate an ecosystem of applications leveraging infrastructure digital twin technologies. It's been a busy and successful initial year for i-twin ventures and we've made several investments in early growth and seed stage businesses with promising digital twin solutions. We've also seen significant opportunity to invest in seed and even pre-seed opportunities. In support of this i-twin ventures has sponsored our ecosystem sponsorship program that brings specific i-twin platform adoption commitments with the funding and support we provide. At the more mature end of the entrepreneurial business life cycle is where we find acquisition opportunities. Certain of these acquisitions we incubate further or accelerate with particular focus before fully folding them into the main of Bentley systems. Examples of this are our 2021 acquisitions of SenseMetrics and Vista DataVision where the integration to provide seamlessly available iot data to the i-twin platform is is relatively significant. Our Powerline Systems acquisition is another example of a more mature business that we're operating inside of our .S.Y. Acceleration team. So as to Powerline Systems we previously shared those expected details, these expected details when we announced our agreement back in November 2020. By way of a reminder or update we did indeed pay 700 million dollars and we did indeed secure a unique structure that provides a tax deductible step up in basis that we present value to be worth 90 million dollars. We did exercise our option to pay all cash for the acquisition which we funded our senior secured credit facility and Verner will speak further on this. We expected to close at the end of 2021 but the HSR process took an extra 30 days resulting in our deal not closing until the end of January 2022. The delay will have an approximately proportionate effect on our expected revenues from PLS for 2022. In terms of our immediate 2022 priorities for grid Greg teed this up nicely. The intersection of the need to harden electrical grid infrastructure the need to extend its reach the need to improve it to accommodate alternative energy sources and the availability of both private and public funding comes together as a ripe opportunity worthy of particular acceleration. In 2022 we intend to increase the pace and scale of sales and marketing activities and invest for more significant geographic expansion. We'll also introduce a structural digital twin for utilities and we will consolidate our structural communications grid offerings into one group in recognition of an increasing opportunity for co-location of telecom equipment with high voltage power structures. Hence PLS, SPYTA and our open tower businesses are combined into what we call our grid integration group. I'd like to close with a brief discussion about cohesive our digital integrator business for which we have two primary ambitions. Firstly as an infrastructure lifecycle digital integrator we aim to demonstrate a growing healthy business model in hopes of stimulating a broader ecosystem of such digital integrator businesses including amongst our current user base of engineering firms. Next we ultimately seek to create stronger Bentley system software product pull through and digital twin adoption. We launched cohesive starting in May 2020 with the acquisition of cohesive solutions a professional consultancy firm organized around leveraging IBM Maximo for transformational outcomes. We followed this up by providing four more acquisitions of professional services consulting firms and integrating a sixth existing Bentley systems asset performance consulting business. After a successful integration push to integrate and align these businesses a project we internally called One Cohesive we are seeing scale leverage efficiencies and a healthy and growing backlog of new business. Just a couple of recent new business wins include Evergy where we leveraged our existing relationship to secure a new eight year contract for the design and delivery of additional maximum solutions as well as a collaboration with Thales for a maximum solution for the Canadian government. Infrastructure asset operations and optimizing as-built infrastructure assets is an ideal vector for introducing infrastructure digital twins and i-twin technology pull through. I highlight here two examples where our cohesive team is deeply embedded in delivering solutions for some of the largest infrastructure projects in Europe the UK national highways smart motorways program and the HS2 high-speed rail project from London to Manchester. So that's what we're up to in .S.Y. investments and Werner will next take us through our 2021 operating results and our outlook for 2022.

Thank you David I'll start with our revenue performance our fourth quarter revenues of 267.7 million includes 21.9 over the same quarter last year most of that growth comes from subscriptions which grow 25.2 over the prior year we attribute the acquisition of sequent to represent just under 13 percent foreign currency headwinds offset just under 2 percent and therefore our business performance comprises just over 14 percent of growth on a constant currency basis our perpetual licenses revenues are down again by 2 million for the quarter relative to the prior year and represent approximately 7 percent of total revenues our professional services revenues are 9 percent of our total revenues and increased 5 million over the same quarter last year representing a growth of 25 percent the continued growth in our services business is attributed to our investments into the cohesive digital integrator businesses which David just discussed full year revenues are 965 million and improved 20.4 percent over the prior year similarly subscription revenues improved by 19.7 percent over the prior year with about 2 coming from currency tailwinds 6 from sequent and just under 12 from business performance perpetual licenses are down 4.3 million for the full year reflecting preferences for subscriptions and professional services are up about 53 for the full year reflective of cohesive moving on to recurring revenue performance our last 12 months recurring revenues increased by 19.7 percent the mid-year onboarding of sequent contributed about six percent points of this improvement our deep and long-standing relationships with our accounts are again proven with our 98 account retention rate and with our constant currency recurring revenues net retention rate now increasing to 109 percent our ar is up 26 over the same point in time last year as mentioned in prior quarters sequent onboarded 13 percent of that growth and since this is a constant currency metric business performance accounts for the remaining 13 which includes the new business flow from our focused smb initiatives i do want to caution that ar growth in 2021 are against the pandemic and ebc induced dip in 2020 to illustrate further we are showing here our ar growth performance since 2017 in relation to an accelerating trend line the significant dip in 2020 is setting a lower comparative basis thereby increasing our ar growth in 2021 which otherwise would have been closer to the trend line also sequent which is about 10 percent of our business and which continues to grow at least twice as fast as Bentley contributed to an ar growth in flag trend starting with its acquisition in mid 2021 now i'm showing here our 2022 outlook with a projected constant currency ar growth between 14 and 16 percent which includes growth of 2.5 percent for the onboarding of power line systems and growth of 11.5 to 13.5 percent from business performance including sequent our gap operating income was 43.3 million for q4 2021 down 11 million and 94.6 million for the year 2021 down 55.6 million from the prior year these gap results reflect rather substantial incremental charges for acquisition related expenses primarily sequent incremental amortization from purchased intangibles also primarily relating to the sequent acquisition non-cash stock-based compensation and the one-time accounting charge of 91 million related to the modification of a portion of our non-qualified deferred compensation plan from an equity settle arrangement to an eventually cash settled arrangement on the right our adjusted EBITDA metric normalizes for such activities with a fourth quarter improvement in adjusted EBITDA of 13.9 and for the full year adjusted EBITDA of 324.9 million is an improvement of 22 relative to 2020 even within our adjusted EBITDA metric there's more to our margin performance over time that needs to be understood we are now through our first year as a public company and our second year of the pandemic as you heard Greg and David comment on before and in the context of our historic margin performance we are committed to an annual expansion of our adjusted operating margins of about 100 basis points David previously explained the shift of our compensation structure for certain top executives from only cash-based compensation pre-ipo to cash and stock-based compensation post-ipo with stock-based compensation being an ad back this favorably impacted our margin performance starting in the fourth quarter of 2020 we here normalize our EBITDA margin as if the post-ipo compensation structure would have been in place from the beginning of 2019 David also discussed quite sizable pandemic related cost savings quantified 42 million which benefited our cost structure in 2020 for 2021 we did expect these costs to fully return into our cost structure and therefore we added them on a pro forma basis in normalizing our 2020 margin performance therefore on a pro forma basis we show a normalized adjusted EBITDA margin of approximately 30 percent in 2019 31 percent in 2020 and we guided towards 32 percent 2021 now for our 2021 actual performance our operating cost structure again benefited from reduced travel and life events but to a much lesser degree than in 2020 we quantify these cost benefits at 13 million relative to what we expected to incur as a post-pandemic run rate and we again normalize for such savings to provide provide you with a normalized period over period margin performance comparison I also added towards the end of 2021 and going into 2022 we now see such costs much more in line with our expected post-pandemic run rate and that our incremental public company operating costs are now also fully absorbed in our cost structure with an actual adjusted EBITDA margin of 33.7 percent and a normalized adjusted EBITDA margin of 32.3 percent we fully delivered on our adjusted EBITDA margin commitment of approximately 32 percent for 2021 for 2022 we see significant opportunities to invest into top line growth we therefore purposefully set our margin expansion target at approximately 33 percent to be 100 basis points above our normalized 2021 margins our outlook is obviously informed by our current sense of tone of business and our outlook assumes stability in foreign currency exchange rates and it does not contemplate any platform acquisitions not already concluded it does therefore contemplate the acquisition of power line systems accordingly we expect revenues between 1 billion 110 million to 1 billion 140 million representing growth over 2021 revenues of 15 to 18.1 percent this expected growth is partly offset by foreign exchange headwinds which we estimate at 18.5 million notably from a stronger US dollar to date than last year give more fairly effective natural hedge the FX impact on margins is significantly mitigated as I mentioned before we project constant currency ARR growth to be between 16 percent and we expect adjusted EBITDA to be between 370 and 380 million approximately at 33 percent adjusted EBITDA margin I also include here some additional explanations on interest taxes capex outstanding shares and dividends with respect to liquidity our Q4 gap operating cash flows of 80.6 million decreased 2.1 percent while our fully operating cash flow of 288 million increased by 11.5 percent over the comparative period in 2020 we expect that on average our business will efficiently generate cash flows from operations at the ratio of 85 to 90 percent of adjusted EBITDA both our Q4 operating cash flow and our full year 2021 operating cash flow were at the high end of this range with cash conversion ratios of 91 and 89 percent respectively in December we entered under very attractive terms in a new 200 million dollar senior secured term loan which will mature in November 2025 corresponding to the maturity of our 850 million dollar revolving credit facility we use the funds from the term loan together with cash on hand and availability from our then ungrown revolving credit facility to fund the acquisition of power line systems which closed at the end of January 2022 for an old cash consideration of approximately 770 million in 2021 we spend approximately 121 million for de facto share repurchases associated with stock based compensation for 2022 we plan to significantly reduce our cash spend for such net settlements by distributing shares to participants on a gross basis we will earmark the cash savings to fund programmatic acquisitions and to pay down debt i also remind you that during the first and second quarter of 2021 we executed the placement of our 2026 and 2027 convertible notes for a combined principle of 1.27 billion and an annual cash interest obligation of only 3 million these notes which are unsecured have attractive conversion strike prices we consider these notes to be a more permanent part of our capital structure and we apply the majority of the to fund the approximately 900 million cash consideration for our acquisition of sequence as of the end of december and up on consideration of pro forma adjustments to reflect the financing of the 700 million cash purchase price consideration for our acquisition of power line systems our pro forma net debt senior leverage was 1.6 times and our pro forma availability under the revolving credit facility was 358 million when including the convertible notes as in debtness our pro forma net debt leverage was five times as of the end of december our business with its predictable and visible cash flows carries that well our capital structure is very is in very good shape and able to support continued growth initiatives and programmatic acquisitions which we intend and with that i think we are ready for q and a thank you

hey carrie are you gonna organize the q and a

yeah

i i needed to get unmuted sorry about that uh we'll begin with jason solino from key bank

great can you hear me

yes

perfect can't seem to get my video on i guess that's okay um so you know greg you know the comments on smb you know you're very nice to see um you know continuing you know all throughout the year but you know what modules are you seeing the most uplift in because at this point are you seeing these smb customers you know supplementing their design and modeling processes with belly you know or are they you know replacing their existing solutions

well i think the the majority of it would be replacing existing solutions many of them have been aware of us we're reaching them with social media marketing and so forth but there's a significant minority where they're starting with specialized products the more expensive products that uh again they they find us through querying and we convert those sales but i think majority of it is a competitive game

okay interesting um you know and then maybe one quick one on on pls you know the the acquisition you know before you guys bought them you know was running at ebit.margins have doubled out of Bentley um but based on kind of the guidance outlook it looks like Bentley is reinvesting that difference into the pls organization so does the 2022 revenue and ar guidance just assume you know pls continues to grow at the historical level and then you know i guess could we see upside you know with uh you know with with the investments and you know ramp up

well we expect to grow faster which which is the reason to spend relatively more of course it was in private equity ownership which seemed to act as if it wanted to to maximize current period profitability but that's not how we do things we we want to benefit the future as as much as we can so what we we want to get the next several years of development plans on pls part done as soon as we as soon as in one year and and especially to uh globalize the offering and bring together this grid integration so we're just salivating in all these directions because there's never been a more auspicious uh market opportunity than now for uh transmission grid and integrated grid so this is the reason we're operating it not business as usual but within our acceleration group where we can put all this impetus together and uh spend more and accomplish more than the path they were on so it's not business as usual for us we're business as usual for pls and the integrated group now including uh spider and our uh tower business together do you want to add more on that thomas holister

um no we uh we are indeed investing um some of that margin windfall if you will jason um and we expect uh we expect gross returns as a result

okay

perfect

i'll

get back into you thank you this will next go to matthew broom from missouho

um okay great um i hope you can all hear me uh hi everyone hi um so uh it's great to see your ltm net retention rate recover from the pandemic um you know from your presentation uh sounds like you expected to track arr growth above even where it is right now um so so how sustainable is uh net revenue retention above that sort of 108 to 110 range well

uh we had been tracking this chart that we showed you sort of internally and we believe there was kind of a mathematical relationship there which we think is borne out now and worth sharing all of those numbers are numbers you've seen before but putting them together in that way sort of suggests the way it works it it can't get as high in our is arr growth because the arr growth includes the new name arr growth which runs about two percent of our arr per year but can it uh can it grow faster well application mix accretion is a reason to think that it can um we haven't talked about inflation um uh maybe this year it's a percent or two more we're sort of not normalized to think in those in those terms uh but e365 we believe fundamentally in substance is is the way to maximize the net retention the accretion the introduction of more usage and more specialized applications that our accounts want and need they want and need it now because they need to get more worked on without being able to hire more people and going digital is the answer for that and the e365 program is how we introduce these success blueprints that they have more appetite for than ever now

right actually and and just on that um the 365 sort of topic um you know the significant majority of your enterprise licensing is is now e365 do you still expect meaningful um sort of um

well what i showed there on the chart was was the uh accounts that spend over 100k year per year for us so that would be other than our definition of snb i realize that's emphasis on the end when you get up to 100k per year but the the portion the largest portion in fact of our arr at present are these 100k per year plus accounts we count them as enterprise accounts that are not yet on e360 and many of them were never on els els was kind of a in between program and and we will be introducing e365 to those accounts for many years to come we think

okay great and and sorry if i could just squeeze one last one in just just in terms of synchro um really interesting to see the strong new business growth there um you know particularly given construction industry headwinds um and clearly it does look like there's a lot of demand for that 4d modeling that you were talking about how large do you see this market opportunity and to what extent um i guess is construction management software a focus for investment for benley going forward that's it well

i would emphasize that we're not and we're not targeting all of construction but but that portion which is amenable to go to 4d i guess i'll ask nicholas for uh for further commentary

exactly greg so our focus is on heavy civil we're not going after any uh any uh construction industry uh out there and our focus is is is actually uh to to skate where the plug is going right uh we are a relatively new entrant in that market and we're going after um uh accounts uh firms that are willing to embrace 3d and are willing to have this fourth dimension with with scattering now um so it's a it's just a net new growth opportunity for uh for us

if i can say the example of the new york dot that nicholas showed is really promising for us because this is a dot that said we're never going to get our work done with traditional 2d plant sets uh let's leapfrog all the way to 4g and work on making the 3d package the legal construction document it's a very big step uh but we hope the ii ja the the jobs that will will help institutionalize this greater ambition of which the new york dot is an example and that involves synchro so so you know the plan is we say construction earring include the how we're going to build it and how you design

it great thanks very much in the nice quarter

well now i'll go to matt headberg from rbc

oh hey guys thanks for taking my question um uh yeah and congrats from me it was well on a strong close to the year um you know you guys spent a lot of time on the presentation talking about digital twin and i know we've talked about digital twin really since you're predating your ipo you know is there any help you can give us on sizing that business i believe exiting 2020 you talked about an eight figure uh run rate um any any additional update on sizing or relative growth of digital

well my my quick answer is ultimately it's a multiple of what we do now because it uses the civil and structural engineers uh simulation and modeling throughout the life cycle of of assets and i'll just give one example now i'm going to turn it over to nicholas to get to your quantitation uh quantification you're actually in but an example is transmission uh grid and and pls opportunities and some of you will have seen the 60 minute segment uh last weekend showing how unreliable is our energy grid it's older all the time um the uh the furk is is now requiring and since december of 2021 um dynamic rating of the capacity of the grid that says well we can use it safely at higher temperatures and so forth but we have to understand better what we have and what its capacity is we can't take that for granted the way it was built and so that's an opportunity for digital twins for existing transmission structures and lines pls has been used in many cases to design a lot of the for instance now we're talking now about the u.s transmission grid but now the opportunity to to become the living 4d digital twin to help it remain resilience address the vulnerabilities and so forth is just a multiple of the opportunity that that was involved in designing it to start with if you can see overall instead of one year of work it's it's 50 years of uh of work nicholas can you help with the quantification

yeah i will say uh the the huge because it is fundamental to the evolution of the industry we the whole industry is moving towards digital twins you cannot really think about it as a tangent or as a specific product line all of our products actually are going to evolve in the context of digital twins so thinking about um how we are monetizing uh our digital twin structures right now um at the heart of our strategy is the i-twin platform or platform for infrastructure digital twins um it is supporting both bentley products and non-mentally products so you can really think about the monetization of that platform through these two channels so to speak so for the bentley products um we're not breaking out you know our revenue by specific brands but we double the revenue from all the bentley products that are powered by a twin including synchro which i mentioned including open tar iq that david mentioned as well in the context of upgrade and then from a a third party we our focus is very much on adoption rather than revenue acceleration at this point in time obviously i mean it's relatively new as a platform as a service we launched it about about a year ago but a little bit more but we basically multiplied the number of partners actively developing on that platform by 10 on over one year right so we see a lot of traction here from an adoption standpoint and over time this will translate into monetization through the products the applications the solutions that the partners are creating on that platform

got it that makes it that makes a ton of sense and then werner maybe a financial one for you um obviously uh you've got the sequin anniversary and you've got power line contributing to revenue this year um you know and i think we can kind of understand how those kind of two things impact top line but when we think about margin expansion you're guiding to about a basis point of expansion which is really good see despite all the investments is there anything that we should think about in terms of like are those more front-end weighted maybe the the question of equity is like the linearity of margin improvement as we move throughout there anything to think about there

but just i'll just throw in because i'm an old finance guy 100 basis points not one basis point

yeah so uh so i think that the consensus that's out there is pretty much in line right now how revenues and margin will allocate uh so we have a very strong q4 as we historically had that that doesn't change with sequence with sequence uh it's maybe more the first three quarters and more like evened out but on a on the revenue allocation i would say like the way you guys have it right now that's pretty good with like q4 being a little bit stronger and margins relative in line as we go through the year maybe to add that towards the end of the year like expenses a little bit increased as we as we talked before where certain events that happen in q4 like our year infrastructure certain incentives are more like back loaded towards the end of the year and then our our wages kind of get increased starting april 1st so so i would say like it's fairly fairly even throughout the year probably like with q1 the avid are marching slightly higher than what you see towards the end of the year

got it thanks a lot well done guys well

let's go to bear joe brewing

okay um great hi everyone uh i i'd like to get your latest thoughts on infrastructure stimulus both here and abroad it seems the funds have started to flow so local agencies have it projects are being committed what's your latest thought on your customers being in a position to see an uplift in their business activity from the stimulus that's passed and then are you also seeing that more directly tie into uplift in demand for your product so that you can kind of connect one to one you know if the second half let's say more firms are going to be receiving their uh their their funding their project activity that might actually manifest in acceleration prevently

when you ask about the engineering firms and their business activity going up certainly their business development activity is going up because they the we just take the example in mobility more contracts are in some stage of of letting and and obviously the engineering firms track that carefully i would say in terms of our business they're interested in programs like e365 that are going to help them improve their productivity so that they can take on more work without taking on more people but most of that new work is ahead now there are some who are working with owners to submit applications for funding the applications for the grant programs there could be a bottleneck in the federal agencies being able to evaluate and approve the applications there's considerable worry about that but i think headway is being made as to maybe some of the most significant aspects so that if i use again the example of the transmission grid the the uh getting getting past if you like the gridlock and permitting and the iija contains very interesting interesting you could call no cost program that speeds up permitting which could take forever for for otherwise for expanding transmission capacity and the expectation of the new work that it'll that will be front-ended by removing the decade it otherwise took to get permits is an aspect in there that going to turn out to be a godsend i think especially in the in the integrated grid aspect of our business opportunity now so it's not just the allocations of the money but some improvements and another one in mobility would be the example of starting to use 3d construction documents for 4d processes that that will that will have everyone's attention there was a terrific article in the engineering news record this month about that will help increase demand for our solutions so

just related to this when you think about exiting at this past year with a 13 organic arr growth rate the guidance for next year it starts at you know 12 to 14 or 11 and a half 13 to a half obviously the the base for comparison is a more difficult one but do you think it's possible that given some of the things you've mentioned so far continued success with s and b application accretion and the infrastructure stimulus layered on top that there's a potential to actually accelerate further from this band you've now been in

i think we are accelerating and things sort of couldn't feel better in terms of these three directions of mobility and environment which is growing tremendously and you know we think of mining is cyclical the cycle we're in i think is going to last until the economy is decarbonized in the in the world and then the grid opportunity that i mentioned it they they all feel like can accelerate now it must be said the world is on edge at the moment following a pandemic with a with a brutal war so we're we're sort of inclined to be circumspect and improve it throughout the year here but but certainly we couldn't be more excited by how we can help infrastructure here in 2022.

Thank you very

much. Well let's go to Sophie Lee from Barenburg please.

Hi thanks for taking my question. I just have one question maybe for Greg especially on the E365. Can you tell us more about the oil and gas recovery and what kind of what ending of the recovery are we in and with the oil prices as high as they are today are you expecting any incremental demand in FY22 from that segment?

I wouldn't go so far as to say expecting it but believing logically that it should occur. I can't tell you where we are in the recover. I think we're at the bottom of or at the end of the trough based on usage and it's capital projects that are down. The industry needs to sweat the operations of the existing assets on the OpEx side and I expect the question about Russia. You know we mentioned Russia during the past year as one of the first to benefit from higher oil prices and spend on civil infrastructure. That was some new business growth that we commented upon. Overall our exposure, Russia is on the order with Ukraine of about 1% of our revenue so there's not a lot at risk and we already are subject to some sanctions and now some new sanctions as to Russia but it seems to me that there will need to be new investment in industrial capacity and E365 is the program they're all on so as soon as they're more busy we won't have to wait a year as we once would have done in the previous commercial program to benefit from that and I hope it'll be 2022. I think they believe it will be 2022.

That's

very helpful. Thank you.

Next we'll go to Cash Rangan from Goldman.

Hey Greg, congratulations on finishing up the fiscal year. I'm curious to get your thoughts driven by factors such as ESG decarbonizing the planet. It looks like civil infrastructure part of the market is going to outpace commercial. I think commercial did probably better than civil in the last 10 years. We had low cost capital, very low rates, building boom, etc. What are your thoughts? Are we right with this hypothesis that we could see a reversal of sorts that civil, it's time for civil to really outpace commercial? Firstly and secondly, intrigued by your thoughts on the SMB SEMP, will as you pursue that opportunity be able to do it with no incremental impact of margins or do you think actually on the flip side margins could go because you could tap into a channel such as resellers that could provide you with more leverage than the 100% direct model of the past. Thank you so much.

Let me start with that SMB as that is fresh in mind. We do want a new channel. We want a digital experience channel. We want it to be direct and no touch and we're engineers, software developers. We're salivating to get underway with that in 2022. We sort of had to slow down to get Sarbanes-Oxley's documentation and certification of the way we do things now, but we are definitely going all digital for the SMB opportunity going forward. Now that will be a bunch of spending on our part. It's a lot of where we're allocating margin that otherwise would have fallen to the top. Ultimately, bigger SMB penetration, getting our share in SMB and it's taking share from our competitor there will improve our margins because we don't need to spend a thing on product development for that purpose. Let me go back to your first question. It's definitely the case that the civil will overtake the commercial and facilities sector in growth rate. The commercial and facility sector is going to suffer from the digestion of how people work now. We are changing our infrastructure empowered workforce plan and we'll use smaller facilities but be design intensive in how we make them bring our colleagues together for collaboration, understanding that they can do their work remotely but their collaboration we can do in facilities. That's going on the world over and I think that's for sure what you predict there.

Thank you so much.

We have time for one more question. Michael Fung from Bank of America.

Michael, might you be on mute?

Yeah, I'm on mute. Thank you for fitting me in. I really appreciate it. Thinking back to PLS, I think part of the justification or benefit with Irvil Lane, Bentley Salesforce and Sales Motion, I know it's early days but any thoughts there on potentially driving upside to revenue growth and synergies? Then second, just thinking about wireless specifically in that industry, still hearing a lot about increase in site development. So, you know, wondering where you think we are in that cycle?

Well, I'm going to ask Nicholas to talk about the industry solutions aspect. PLS has done well in dealing with the transmission engineers. They tend to be aware of PLS and at least this part of the world. There's a lot of the world left but at the enterprise side, the digital twin opportunity is where our industry solutions will help most. And the 5G location, if that's what you're asking about, is a really fascinating opportunity that we call grid integration. We'll talk about that in a second.

In general, we're strengthening the industry dimension in our -to-market. One of the key growth industries for us is electric utilities. Now, if you remember as we presented PLS, we said that their -to-market investments were relatively little. There's a big part of the business which is through channels. You could argue Bentley is going to become the biggest channel for the PLS software. We see synergies across the accounts, the traditional PLS accounts with the traditional Bentley account here in North America. But we see, of course, a huge potential for PLS outside of North America. That's something that they wanted to do on their own and that's something that we'll be able to accelerate now that PLS is part of Bentley.

I guess it's fair to assume looking at your guidance, the historic PLS results, really not much of that synergy baked into your guide for this year. Is that fair?

I would say that we expected 30 million of subscription revenue for 2022. Again, we closed a month after we thought so, prorate that. That 30 million reflects PLS's historical growth, which was a bit faster than Bentley systems. It's not a layup, but internally we're obviously aiming higher than 30 million, but the guidance we have out there reflects the 30 million prorated for not having January revenues.

Great. Thank you. Look forward to hearing more on 5G as well. Thank you. Well, we'll have to leave it there. Thank you, everybody, and we'll see you next quarter.