Bentley Systems, Incorporated

Good morning and thank you for joining Bentley Systems Q4 2022 operating results and 2023 Outlook webcast. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems Chief Executive Officer Greg Bentley, Chief Operating Officer Nicholas Cummins, Chief Investment Officer David Hollister, Chief Financial Officer Werner Andre, and Chief Technology Officer Keith Bentley. This webcast includes forward-looking statements made as of February 28, 2023 regarding the future results of operations and financial position. Thank you, Eric.

I hope all of you have had a chance, or soon will have, to meet our new and very experienced investor relations officer. And thanks to each of you, as always, for your interest and attention. Today, I and COO Nicholas Cummins and CFO Werner Andre will review our resilient 22 Q4 and full year operating results. As the infrastructure engineering software company aligned global priorities, and momentum from our three incremental growth initiatives, E365, Virtuosity for SMB, and iTwin Investments, reinforce our confidence for, again, a strong operational and financial outlook for 2023. Today, we will also hear, as I always enjoy, from founder Keith Bentley, who will be transitioning his chief technology officer role at the end of this quarter and retiring later this year. And the investment community will hear for the last time from former CFO and current Chief Investment Officer David Hollister, who will be retiring at the end of this quarter. As always, I will start with what's new in our tone of business. Our key operating results headline is year-over-year constant currency ARR growth consistent with our original and sustained financial outlook of 12.5% in business performance, which excludes ARR acquired with power line systems. For the quarter and for the year, this reflects robust and sustained momentum everywhere else in the world, making up for having lost Russia and for compounded headwinds in China. There, in addition to geopolitical concerns, which are not abating as evidenced by more recent developments, During the fourth quarter's major annual selling season, the pandemic first caused a shutdown of our offices and then widespread sickness after the reopening. And as well, the government's intended infrastructure spending seemed to have been delayed. For the year 2022, for instance, as reflected in our anticipation last quarter, we would have exceeded our range of ARR growth outlook if not for the regression caused by Russia and the knock-on counter-globalism in China. We are cautiously bearing in mind those risks in China in our outlook for 2023. With respect to the relative tone, the color of business by infrastructure sector, The only change in Q4 was that the commercial facilities sector finally flatlined. We had been anticipating this earlier in 2022, and we do expect this to continue for 2023, though only affecting a single-digit percentage of our ARR. And we have regularly reported on the Dodge ENR quarterly survey of civil engineering firms' self-reported backlogs. I believe Q4's reported downward assessment as a percentage of their ideal backlog has more to do with the reporting firm's assessment of what's ideal for them as the same firms report net increases in backlog from Q3. Moreover, the ACEC quarterly survey representing a much larger sample across all engineering firms actually quantifies the substantial current backlog as fully 12 months. And especially in this survey, there are continued expectation of a further increase in backlog over the coming year. The related sentiment survey also shows continued improvement over last quarter. For our accounts, in the face of workforce constraints and growing backlogs, going digital is the priority for increasing their infrastructure engineering capacity. And our consumption-based E365 commercial program, embedding our enterprise success expert teams to implement each E365 account's prioritized blueprints for new digital workflows every quarter is the first of our own primary incremental growth initiatives, as E365 accounts achieve demonstrably faster ARR growth than our other enterprise accounts. In 22Q4, as expected with our seasonal bulge in renewals, we upgraded accounts to E365 at about twice the ARR rate as in each earlier quarter of 2022. E365 increasingly becoming our mainstay commercial program has contributed to our application mix accretion that measures the annual change at constant pricing and average user spending per consumption hour. This reflects their pace of upgrading to more specialized and thus more expensive applications and has been expanding steadily from approximately two and a half to four and a half percentage points of ARR growth over the last two years. And of course, that's in addition to growth from pricing escalation, volume, and cloud services adoption. Our second incremental growth initiative has been our virtuosity go-to-market strategy for SMB accounts and prospects. From the beginning, it has generated exponential growth continuing to reach in 22Q4, a milestone of over $33 million in Virtuosity ARR. And for yet another consecutive quarter, Virtuosity's new business included more than 600 further new logos, enabling us to surpass the further milestone of over 40,000 unique accounts globally. And new logos added almost three percentage points of ARR growth. And among our existing accounts, net revenue retention in Q4 remained at its high of 110%. Concluding as to SMB, in Q4, SMB represented fully 47% of our overall new business. And even in China, SMB new business grew year over year in 2022 Q4. And in fact, New business overall was healthy in Hong Kong and Taiwan. So I believe our applications are competitively well-positioned throughout Greater China. But to reach our potential there, we must navigate the geopolitical issues that currently limit our prospects in the primarily state-owned mainland enterprises. Thus, in December, we announced in China our second Chinese joint venture, which doesn't yet have an English name. It's with HDEC, a large design institute that's part of Power China. We've worked closely with HDEC for decades as a major account and particularly to support their development of China specialized applications based on our platform, both for their internal use and to market to their peers. The joint venture with HDEC, whose business is primarily engineering for hydroelectric power generation, will soon become our exclusive channel partner for all hydropower accounts in China, representing almost 20% of our business there. We will transfer to the JV, along with some Bentley China colleagues, our existing direct relationships and a capital contribution for our one-third ownership. HDEC will contribute two-thirds of the capital and its existing application business and products. The JV will initially resell our existing applications as well as HDEC's, but over some years will work to increasingly shift the mix towards all indigenously developed Chinese products built on our platform, paying us royalties rather than net product revenues and eventually leading to hoped-for investment returns as well. Moreover, the JV will cater to the preferences of this Chinese enterprise market. Those are preferences for perpetual licenses rather than subscriptions, and rather than our cloud-based enterprise systems, for on-premise systems like iLink, the reworked derivative of ProjectWise, now coming to market from our first JV. So during 2023, major portions of our ARR in China will tend to regress from gross to net, and then as subscriptions are cannibalized for perpetual licenses. But given the magnitude of the Chinese market, accounting for 30% of global infrastructure spending, we think that to manage through the geopolitical headwinds, These investments and risks are warranted for sake of the long term. Now, it's too early to knowledgeably quantify this drag on 2023. However, you will notice that our annual outlook for 2023 in terms of ARR growth looks like 2022's annual outlook and actual outcome. Although the complete loss of Russia obviously can't occur again, the possibility of China somewhat following suit could be a significant 2023 factor. But for both years, let me emphasize that Russia and China are the asterisk exceptions to our backdrop of unprecedented sustained growth and momentum for our business and for our colleagues everywhere else in the world for 2023, as Nicholas will now elaborate.

Thank you, Greg. I am pleased to report that we made a strong finish to 2022 and see momentum continuing into 2023 with healthy pipelines and a very brisk pace of business. Market conditions remain positive. Q4 was a very busy quarter, with more evidence of IIJ investment and EU recovery funds flowing through, more so than in prior quarters. And as Greg pointed out, accounts appear to be more concerned about their capacity to execute rather than their book of business. Talking about momentum, I would like to acknowledge the invaluable work of our new Chief Revenue Officer, Brock Bollard, who has been instrumental in a successful global rollout of our E3C5 program. And I'm delighted that he now brings his wealth of industry experience to our operating council. Of course, I would be remiss if I didn't also pay tribute to his predecessor, Gus Berksma, whose relentless focus on execution elevated the company's sales performance to a new level of precision. Looking at the regions, I will draw your attention to Europe and India. Europe was a bright spot with improving market conditions and a strong pipeline. The main growth drivers were public works and contractors in the industrial sector, as well as an acceleration of E365 conversions and consumption. In India, momentum continued at both enterprise and SMB, with public works and industrial driving year-on-year growth. Transportation continues to be a strong point for us, with funds flowing and lots of project awards. India is also a focus for urban and rural drinking water programs, and we made the single largest sale of a water product line in India in the last 10 years. Southeast Asia continues to impress with the scale of its ambition, and it can point to mega projects in transportation, in rail in particular. At the Year in Infrastructure and Going Digital Awards, which were held in London in Q4, two rail projects from Southeast Asia were finalists. The Metro Manila subway project, and the eventual winner, the high-speed railway from Jakarta to Bandung. The project sets a new benchmark for going digital, iTwin technology reduced the design review time by 10% and shortened the construction schedule by six months. Turning now to products, MicroStation grew fast in SMB. This is a positive indicator that there's still an untapped segment of individual practitioners and smaller infrastructure organizations for whom MicroStation has a strong product market fit. Why this is significant is that these practitioners and organizations who may be using MicroStation on a product for the first time represent an install base that we can in future upsell to a higher value, more powerful engineering application. What Greg calls application makes a creation. And beyond that, help them get on the on-ramp to infrastructure digital twins. Other brands with notable performance in Q4 included OpenRail, OpenBridge, OpenFlow, Saks, and Leapfrog. Finally, a few words about our colleague engagement. As you will see in the 10K report, we had a remarkable 92 participation rates in our 2022 annual colleague engagement survey, with 85% of colleagues responding that they're proud to work for Bentley, and 87 glad to recommend Bentley as a place to work. It is gratifying to see favorable comparisons with tech industry benchmarks against a backdrop of tech layoffs and so-called quite quitting. This is due in no small part, we believe, to our intentional approach to work flexibility and colleagues' well-being, which facilitates a high level of engagement and productivity. What we call our Infrastructure Empowered Workforce Plan encourages our colleagues and their managers to make effective choices about the right balance of working from home or in the office and truly make the best of both worlds. Our policy of not requiring colleagues to come to the office at any specific frequency has been instrumental in attracting and retaining talent and allowing our colleagues across the world to contribute to Band-Aid system success in a meaningful way. And with those operational perspectives, back to you, Greg, for corporate developments.