Bentley Systems, Incorporated

Good morning, and thank you for joining Bentley Systems Q3 2023 operating results. 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, and Chief Financial Officer Werner Andre. This webcast includes forward-looking statements made as of November 7, 2023, regarding the future results of operations and financial position, business strategy and plans, and objectives for the 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 reply on Bentley Systems' Investor Relations website at investors.bentley.com on November 8, 2023. After our presentation, we'll conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.

Good morning, and of course, thanks to each of you for your interest and investment in BSY. In our agenda, I start by interpreting directions within our quarterly operating results. Each quarter, a natural KPI headline is our ARR growth year-over-year business performance. While in 23Q3 that nominally ticked down to the 12.5% midpoint of our financial outlook for the year, this nonetheless represents continuity in our strong growth momentum given puts and takes specific to this quarter, which I will explain. And we are likewise steadily tracking to our planned annual gains in operating margins and cash flows. Leading the way, even among more broadly strong market conditions this quarter, is the public works slash utilities infrastructure sector in the US. With almost half of our ARR here, This mainstay, in effect, serves as the governor on our underlying flywheel. U.S. public works slash utilities continues to benefit from the fundamental expansion emerging finally beyond transportation of Infrastructure Investment and Jobs Act funding. This quarter's ACEC survey of U.S. engineering firms across all sectors reports a medium current backlog of 11 months. reflecting an engineering resource capacity gap. Even more pertinent for digital workflow investments, expectations for a year from now across economic sentiment anticipate an even stronger market for engineering firms throughout next year that will result in yet higher backlogs. When ACEC asked this time about the lack of qualified workers, You see there was strong agreement that an engineering resource capacity gap is already constraining engineering firms from growing to meet this backlog of work. Another indicator of this engineering resource capacity gap is that the average duration that our applications are used in a workday has continually increased now by 23 minutes per day since before the pandemic. We will shortly come back to count these workdays. As Nicholas will report firsthand, the capacity gap is motivating infrastructure engineering organizations everywhere to more than ever prioritize going digital. And with the resulting demand broadly pervasive across infrastructure sectors and global regions, our net revenue retention, the trailing indicator for growth in existing accounts, remains at its sustained high level. So then, what's up or rather down with year-over-year ARR growth as of this most recent quarter end? Well, a plurality of ARR is now under our E365 program for our largest accounts. And in Q3 23, this E365 proportion, of course, continued to grow both through accretion within existing E365 accounts and by accounts that spend over 100K per year in ARR, hence we consider to be E365 prospects rather than SMB, upgrading to E365 from our select subscription program. Under E365, we charge accounts for our project-wise and asset-wise enterprise collaboration systems based on the total number of users or assets respectively in the quarter. But the majority of our E365 charges are for daily consumption of our applications, which consumption occurs substantially on the weekday workdays during a quarter. A year ago, 22Q3 had a calendar with 66 weekdays, but 23Q3's calendar ended with a weekend day and began with two weekend days that were followed by effectively two holidays in the US rather than one holiday last year. Now, even though half of our business is in the US, holidays aren't universal. So even setting aside the comparative effect of that four day weekend, If we just count all weekdays as workdays, 23Q3's E365 consumption year-over-year comparison suffers as a result of having had one less weekday slash workday than 22Q3. Moreover, because we annualize E365ARR by multiplying the trailing quarters consumption by 4, 23Q3's year-over-year ARR growth was negatively impacted by effectively losing four weekday workdays of E365 consumption. But as you can also see here, this phenomenon will normalize here during 23Q4, as both years' fourth quarters and the full years have the same weekday counts. Now, our overall ARR growth, of course, comes not only from net retention and accretion for our existing accounts, increasingly through E365, as we have been discussing, but also from new logos, which for 23Q3 again accounted for 3% of our ARR growth. New logos, of course, tend to start as SMB. we have become confident in being able to grow our SMB business at least as fast as we grow E365 for our enterprise accounts. And in 23Q3, SMB growth was faster. By virtue of our own investments in going digital, our virtuosity inside sales group focused on SMB is continually getting better at digital engagement. The net quarterly ARR additions from our Virtuoso subscriptions continue to compound. In 23Q3, Virtuoso subscriptions again attracted over 700 further new logos. But in addition to subscriptions, our SMB sales group also offers perpetual licenses, largely for differentiation in appealing to prospects who don't have that choice from our principal competitor. this strategy is succeeding. During 23Q3, we added almost 300 incremental new logos through perpetual license sales. And as you see, overall, we saw in 23Q3 an unprecedented year-over-year upsurge in purchasers who chose perpetual licenses rather than subscriptions. We have generally expected this in China, here broken out, as we pivot there intentionally towards localization. As a result, while our overall new business and revenue in China did increase sequentially and year over year, ARR there continued its expected resultant decline. In fact, the 97% of our business excluding China did maintain its highest level of year over year ARR growth. To summarize the business directions of 23Q3 in light of these puts and takes, I was pleased with our strong year-over-year ARR growth rate, notwithstanding its slight decline compared to last quarter in light of the combination of the E365 consumption workday anomaly and the observed transition to license purchases. For significant corporate developments, I start with our annual Year in Infrastructure conference, where I entitled my keynote presentation, Going Digital Towards Infrastructure Intelligence. We gathered physically in Singapore last month with our Going Digital Awards competition finalists, chosen by juries of independent professionals, and we had there over 120 members of the world's infrastructure media, and we live-streamed from there. I think year-end infrastructure is the best available means to understand the fundamentals of our business on the ground. But the time zone made even virtual attendance difficult. So, Investor Relations Officer Eric Boyer attended and has compiled a video of the two edited keynotes and other conference highlights, which is now available for you on our Investor Relations website. The global nature of the year in infrastructure was signified by the provenance of the 36 finalists chosen from the 300-plus nominees in 51 countries. Once again this year, the region with the most finalists was Asia ex-China, with a prolific concentration of digital advancements. I've referenced many examples from our host country, Singapore, leading the way to infrastructure intelligence. In a world with a widening infrastructure engineering resource capacity gap, to me, the most significant headline comes from our having asked each nominee this year for the first time to quantify their project engineering savings from going digital. For those finalists where this could be calculated as a percentage, the median was 18%. This underscores the importance and potential of our BSY busy work and of the Year in Infrastructure Conference to help promulgate these digital workflow advancements which can make a difference of such magnitude. As an indication of good traction from such efforts toward making all projects as good as the best projects, while in the past we have reported on digital twin progress among the finalists only, I find it encouraging that this year, among all the 300 plus nominated projects, Fully 28% credit Reality Modeling, our iTwin capture software for creating engineering-grade as-operated 3D models, generally from drone surveying, as the context for Digital Twins. And likewise, our Synchro 4D Construction Modeling is now credited by fully 17% of all 300-plus nominated projects. Given that virtually all design, modeling and simulation is already performed in 3D, we believe that seamlessly incorporating 4D simulation inevitably underlies the future of construction, while also delivering the digital twin building blocks for infrastructure intelligence during the lifecycle of resilient asset operations. And while it is encouraging that this year 64% of finalists credit our iTwin platform for any or all of such digital twin advancements, I think it's even more significant for iTwin now to be credited by fully 35% of all 300 plus nominated projects. Indeed, the iTWIN platform and schema commonality across our Bentley infrastructure cloud enables infrastructure engineering data to compound in value throughout project and asset life cycles. As to the extent of this potential value, we estimate that our project-wise users are currently accumulating over 100 million new unique digital components per month for their future benefits. While Nicholas will next talk about how generative AI will yet further compound the value for an account of their data in ProjectWise, for instance, through co-pilot training and reuse of their data across their new projects, at Year on Infrastructure, I highlighted several infrastructure intelligence strategies already being showcased by finalists there. In the forefront of compounding value from accumulating data is BP, subject of this press release last week. To our knowledge, BP's deployment of asset-wise asset lifecycle information management, now underway globally after its 2019 implementation in the North Sea, becomes the industrial infrastructure sector's only initiative to leverage the same cloud-based central information store across all projects and operations. Where otherwise the unfortunate norm is for separate enterprise systems to remain disconnected, BP's infrastructure engineering data can compound in value from projects through operations with asset-wise reliability working to optimize inspections, minimize maintenance costs, increase availability, and to improve safety and risk management. At $106 billion of net infrastructure value, BP is number 33 among the just released 2023 Bentley Infrastructure 500 top owners rankings available at the link here. As I believe our greatest ongoing growth opportunities are in digital twin advancements for operations and maintenance, it is gratifying to report that our current revenue run rate from serving 359 of these 500 2023 top owners, increased by over 20% from the comparable revenue run rate for 2022. And while fully half of our revenue run rate is now from infrastructure owner operators in general, our revenue run rate from just these 500 top owners, who like BP have the most to gain from compounding the value of their engineering data through infrastructure digital twins, now exceeds 20 of our overall total speaking of rankings the annual arc league tables for engineering design tools this year acknowledged bsy's number one leadership not only in these infrastructure sub-sectors which they track individually but now also for owner operators in total to me that means we're on the right track towards roi from infrastructure intelligence Finally, I am glad to report, since last quarter, two programmatic acquisitions. While even more immaterial financially than most others, each of these is significant strategically. Our iTWIN Ventures approach has adapted to view the changed venture capital valuation environment opportunistically. Rather than a typical VC multitude of small stakes, We are now open to outright acquisitions of earlier stage companies that can become significant within our digital twin ecosystem. BlinkSee, our first acquisition in what I call asset analytics, applies AI to crowdsource data to detect for roadway operators immediate maintenance conditions such as obstructions, quality of lane divider paint, and or actual versus planned construction zones we will have more to say next year about consolidating asset analytics opportunities to go beyond our primary current business model which charges primarily per user to incrementally monetize digital twin subscriptions per asset and for instance per mile as does blinksit Last quarter, I discussed this year's capital market-induced slowdown in exploration for new mines and its impact on Sequent. While this pause in new mines continued during 23Q3, Sequent, which depends more on continuous operating and expansion of existing mines, is still growing faster than BSY as a whole, though less fast now than our other platform acquisition, Powerline Systems. A source of greater balance and resilience for Sequent is our comprehensive agenda to expand the role of subsurface modeling for civil and environmental infrastructure, which for Sequent is now growing as fast as their mining mainstay. To further this, we announced that year on infrastructure the pending acquisition of flow state solutions. extending Sequent's market-leading geothermal comprehensiveness to the simulation of geothermal reservoirs, wellbores, and surface networks. Like Sequent itself, Flow State Solutions is based in New Zealand, where geothermal already accounts for almost 20% of power production. And now, from these quarterly directions and developments, over to Nicholas. for more complete operational perspectives on 23Q3. Thanks.

Thank you, Greg. The engineering resource capacity gap is indeed top of mind. Two weeks ago, I attended a CEO summit for top engineering firms organized by AEC Advisors. There were two takeaways relevant for this conversation. First, firms recognize their role in solving the world's biggest problems. Infrastructure is key to support economic growth ensure energy security and address climate change. Second, firms cannot find enough engineers to do this important work, and they are looking for solutions. Software is how they will drive efficiency, as one engineering firm CEO said during a panel conversation. This is a great summary of our current market conditions. Let's start with infrastructure sectors. The trends remain broadly in line with Q2. AR growth was once again led by public works and utilities. The sector continues to benefit from large infrastructure investments around the world, and we expect this to be the case for years to come. AR growth in resources remain above company average. Sequent, with its core business in mining, performed as expected. As discussed last quarter, we see less funding available to finance new exploration projects. However, Sequin is used throughout the mining value chain and is well positioned to help mining companies be more efficient when under margin pressure. AR growth in industrial softened somewhat, in particular with EPCs in India and Southeast Asia focused on energy projects after many quarters of rapid expansion. The commercial and facilities sector remained flat. Moving on to regions, America has performed well, once again led by North America, with more federal money from IIJ being spent on a greater variety of infrastructure in the US and given a strong momentum with the state departments of transportation. Our growth rate with DOTs has increased by 50% year over year, all the more impressive given that these departments increasingly outsource work to their ecosystem of engineering services firms. EMEA's growth continued to benefit from public funding for projects across transportation, water, and energy. Some of these projects were finalists at Yale Infrastructure. We are also growing with engineering firms who are expanding their reach outside their home country due to the strong demand environment in the broader region. In Asia Pacific, the main growth drivers were Australia and India. In the region, transportation and water continue to be strong performers. China continues to weigh down broader AR growth, given the preference there for perpetual licenses. Returning to the departments of transportation in the US, we are partnering with the DOTs in new ways, both to help them secure funding and help them in going digital across their respective ecosystems. We are squarely in year two of the IIJ's implementation, and new and increased funding streams are available for DOTs to take advantage of. For example, we helped 13 departments apply for federal advanced digital construction management systems grants, which can fund software purchases. We believe these efforts will help strengthen our momentum next year as these grants get awarded. Despite the new funding, the DOTs are also impacted by engineering resource capacity constraints, which create an exciting opportunity for us to help them drive efficiency. For example, we partnered with AASHTO, a nonprofit organization of all U.S. state DOTs, to support digital delivery across their value chain, including streamlined design to construction processes. Overall, we are excited about the expanding opportunities with the DOTs and our increasing role as a trusted partner. Regarding products, the main growth drivers are also in line with the previous quarter. We had noticeable growth with our civil engineering applications, OpenRoads and OpenBridge, our structural engineering applications, STAD and SACS, as well as PLS for electrical transmission structures. We also seen continued success with our OpenFlows water modeling application, which is becoming a go-to product for water infrastructure around the world. As Greg mentioned, 2023 was a groundbreaking year for infrastructure intelligence. We have been impressed by the progress made by infrastructure organizations in leveraging data to improve project delivery and asset performance, as exemplified by the Going Digital Awards finalists. If data is the obvious foundation of infrastructure intelligence, digital twins are the building blocks. Digital twins are used to unlock engineering data from files so that it can be analyzed, reuse across projects, enrich with operational and enterprise data, and mobilize across infrastructure lifecycle. Because of the power of digital twins, we are evolving our entire product portfolio to leverage iTwin, our digital twin platform, to accelerate infrastructure intelligence. At Year in Infrastructure last year, we launched Bentley Infrastructure Cloud, including project-wise powered by iTwin. This year, we announced that we're bringing iTwin to Bentley open applications, starting with the next release of MicroStation for systematic use of digital twins in the design phase of the infrastructure lifecycle. This will enable users to collaborate in real time, evaluate the impact of changes more seamlessly, and significantly reduce rework and errors, resulting in better designs faster. When we talk about infrastructure intelligence, we of course think about the significant role that artificial intelligence can play in improving product delivery and asset performance. AI was an important topic at Yale Infrastructure, and it was top of mind for the engineering firm CEOs I met two weeks ago. They seek opportunities to use AI to increase exponentially the efficiency and effectiveness of their engineers. As I mentioned last quarter, Bentley is not new to AI. We already use AI in our software for asset monitoring, and we see huge potential for generative AI during the design phase of the infrastructure lifecycle. We believe generative AI will empower, not replace, infrastructure engineers. Consider our own software engineers use GitHub Copilot, a generative AI tool, to assist with development by generating routine or basic code, documentation, automated test cases, and more. We envision a comparable co-pilot for infrastructure engineers, which can take on mundane and time-consuming tasks during the design process so that engineers can focus on higher value activities. At Yeon Infrastructure, we presented our approach to generative AI for infrastructure engineering, beginning with an AI agent that assists engineers in further optimizing site layouts by leveraging designs and data from their previous projects. We also showed how generative AI can be applied to minimize time spent on product documentation by automating drawing production with fit-for-purpose annotations. Capabilities like this can improve engineers' productivity and their overall work experience, both being essential in light of the engineering resource capacity gap. Of course, to train generative AI models, you need data. and we have a responsibility to our users to be very explicit about our approach to their data. We presented our commitment to data stewardship at Yearn Infrastructure. While we are committed to help our users derive ever more value from the engineering data they secure in Bench Infrastructure Cloud, including maximizing its potential for generative AI, we are also clear that they retain all access and control over it. Our users' data is their data always. They get to decide how to use it to train AI for their benefit. One last thought. For infrastructure engineering, as proven by our software engineering experience, the results will be better, not weaker, from accounts we use of their own product data, rather than the least common denominator of unknown engineering data that will be somehow aggregated. With that said, I will now hand over to Werner for details of our financial results.