Bentley Systems, Incorporated

good morning and thank you for joining bentley systems q4 2023 results in 2024 outlook webcast i'm eric boyer bentley's investor relations officer on the webcast today we have bentley systems chief executive officer greg bentley chief operating officer nicholas cummins and chief financial officer verner andre this webcast includes forward-looking statements made as of february 27 2024 regarding the future results of operations and financial position, business strategy and plans, and objectives for future operations of Bentley Systems Incorporated. All such statements made in or contained during this webcast, other than statements of historical fact or forward-looking statements. This webcast will be available for replay on Bentley Systems Investor Relations website at investors.bentley.com on February 27th, 2024. After our presentation, we will conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.

Good morning, and as always, thanks to each of you for your continued interest and investments in BSY. I will start by relating the directions reflected in our 2023 results to our consistent expectations for 2024, and then some developing aspects, which also have a bearing on our outlook. Nicholas will cover operational highlights of the quarter, including soundings of the current tone of business on every front, and Werner will review financial details for both years, all the way through cash generation and its planned allocation. Most significantly, I must emphasize our overall satisfaction with 23Q4 and the full year 2023. In keeping with this, Nicholas and his operating teams are to be enthusiastically congratulated for performance which, while surpassing our established annual hurdle of 100 basis points improvement in operating margin including stock-based compensation, earned 100% of their new business-based incentive pool. Although this entailed resourceful rebalancing after new mining investment unexpectedly slowed down in mid-year, we have ended the year with historically high momentum in our fundamental ARR growth. A quarter ago, A key question about ARR growth for 23Q4 was the degree to which accelerating progress in transitioning our China commercial model to be less directly subscription-oriented could perversely offset overall ARR growth, otherwise always our best performance gauge, across the remaining 97% of our world. Indeed, China, which previously was an ARR growth contributor, has been the significant detractor from our ARR growth, as shown here, ever since sanctions on Russia coincided with geopolitical apprehension about American software subscriptions for Chinese state-owned infrastructure enterprises. In 23Q4, our purposeful structural changes in China did seem to be making progress. When Chinese-developed products of our first joint venture cannibalize project-wise installations, we lose ARR in exchange for approximately equivalent one-time net proceeds of a license sale for our underlying platform. But with no American stigma, hopefully volume expands so that we can come out ahead. In fact, we concluded 2023 by growing our revenues in China for the year by 3%, as such licenses more than offset the inevitable decline in China ARR. To quantify the increasing impact on ARR of this intentional China market change, our overall ARR year-over-year growth rate of 12.5% is increasingly diverging from our high of 13.5% in the quarter for the world excluding China. And given the acceleration in our business benefiting but ARR detracting transitions in China, the baseline ARR growth rate for our 2024 outlook must reflect this gap prevailing foreseeably. To further consider how the other directions within our growth momentum exiting 2023 should inform our 2024 financial outlook, let's review in turn each of the underlying factors that we portray notionally in our introductory materials as layers within ARR growth. Starting at the top with new business from new logos, in 23Q4, For the fifth straight quarter, this accounted for about 3% in ARR growth, led by our SMB initiative and ongoing digital experience investments towards self-service automation. Reinforcing confidence in continued such momentum in 23Q4 Virtuoso subscriptions attracted over 700 further new logos. For the eighth straight quarter of over 600, in addition to over 400 separate new logo SMB accounts, where in 23Q4, we achieved what I suspect was a competitive displacement through a perpetual license sale. The other layers of growth are those which aggregate to our net revenue retention for existing accounts. Because NRR takes into account only recurring revenue and not license sales, The mixed change in China from subscriptions to licenses is increasingly impinging on this measure. So while NRR declined in 23Q4 to 109%, excluding China and Russia, which is also a factor now, as this looks back over the full trailing two years, NRR would have remained at 110%. Our most significant initiative to sustain NRR accretion is our E365 consumption subscription program for enterprise accounts. You see here in green the incremental magnitude and proportion of ARR reached through E365 accretion and expansion in 23Q4. Although it being a fourth quarter with its greater concentration of E365 prospect renewals, we upgrade relatively more ARR to E365 than in other quarters. In 23Q4, it remained the case that a relatively small portion of E365 growth was from our next largest accounts upgrading to the program, with the majority of E365 growth representing NRR within accounts already on E365. E365 renewal negotiations for the largest accounts now almost always entail resetting the individualized floors and ceilings which serve to bound what we can charge for the account's consumption. Increasingly, we and they have preferred to allocate our respective risks of consumption upside and downside proactively, progressing over multiple future contract years rather than to renegotiate every year. Our own priority is to maintain floor and ceiling parameters, which in each case enable and incentivize double-digit ARR growth when effectively combining consumption volume, mix, and annual pricing escalation. During 23Q4, one negotiation resulted for our first time in a total contract value in nine figures USD. Such multi-year E365 arrangements reinforce our account's commitment to BSI and to going digital for mutual long-term growth. However, the contract length has no bearing on E365's straightforward, ratable revenue accounting and annually recurring cash flows. And while much of our non-E365 subscription revenue is subject to 606 vagaries across the quarters of a contract year, we have almost none of the multi-year bookings and or billings which cause confounding obscurity for many other peer companies. By contrast, over and above the compelling transparency of E365 ratable consumption accounting, multi-year floors and ceilings work out to everyone's advantage including investors because they preserve our incentives and upside while improving and extending the visibility of our arr revenue and cash conversion back to the outlook for each accretion layer our annual price escalation which can vary by country and product, mindful of competitive conditions, is on average more or less calibrated to stay ahead of inflation in our own costs, which are primarily for colleague compensation. For each of 2022 and 2023, we realized, on weighted average, escalation in mid-single digits. For 2024, It must be acknowledged that peak inflation in the world seems behind us, so escalation will contribute less ARR growth going forward. As to consumption volume, we face another putative headwind, with the demographics of retirement tending to reduce the infrastructure engineering workforce. And in theory, increasing productivity through going digital can even be at the expense of usage volume. the only offsetting gains in application usage volume could come from competitive displacement opportunities on the margin. On balance, we cannot now expect nor rely upon net increases in user volume. However, the widening engineering resource capacity gap between a static number at best of infrastructure engineering professionals and the burgeoning demand for world resilience and adaptation is in fact the greatest and most durable driver of ARR growth because going digital is the compelling key. Recall that the 2023 Year in Infrastructure Going Digital Award finalists documented an average of 18% savings in engineering time through the digital advances we enabled for them. Quite noticeably, Our enterprise accounts are now explicitly prioritizing E365 blueprints, which most deliver savings in man hours and usage days to our ultimate mutual benefit. And accordingly, application mix accretion, which measures the pace of our users upgrading to our more specialized and relatively more costly applications to increase their productivity, continues to more than offset demographically constrained usage volume. And accelerating application mix accretion, which is our average revenue per application usage day, holding pricing constant for the calculation, our user success functions, especially by way of E365's digital workflow blueprints, are literally leading the way. So I'm pleased to report accelerating annual progress with annual application mix accretion having grown from about 4.5% for 2022 to about 6% for 2023. This also captures the usage of project-wise attached to these application user days. So this measure closely corresponds to what we've shown that the ENR top engineering firms, a representative quarter of our business, spend with us. Since that spending only averages about 1% of the amount that they bill to their clients for that usage time, I believe there's lots of headroom for application mix accretion to continue to expand indefinitely. And looking to what's new, although we're confident in this long runway ahead for our strong and consistent consumption per user-based business, I believe that here in 2024, we're finally at the point where our third aspiring growth initiative, after E365 for the enterprise market and Virtuosity for SMBs have become firmly established, will finally take off after having been promised in our intro deck, as you see here, for years. This third growth initiative leverages digital twin opportunities to be incrementally monetized through cloud subscriptions charged per asset. While I think that, by rights, this can grow to become larger than the provision of software per user, the challenge has been that scaling digital twins takes a surrounding ecosystem of digital integrators to provide the related services around data quality and engineering proficiencies which complete the use cases. To that end, we, along with others, have been determinedly evangelizing the infrastructure digital twin potential, spanning delivery and performance to thus both the infrastructure project delivery supply chain and, of course, to owner operators directly. Frankly, institutionalized conservatism has made this a slow sales cycle, with success by the ones, and primarily in Asia Pacific. To gain experience in the meantime, we have assembled our own cohesive digital integrator to show the way. Its now nearly $100 million services business is opportunistically anchored by being the leading global implementer and emerging cloud hosting provider of IBM's Maximo, the primary incumbent choice of infrastructure owner-operators for enterprise asset management. Thus, over time, Cohesive can open doors for our iTwin platform to integrate engineering technology, ET, and operational technology, OT, with Maximo's IT, for digital twins to optimize operations and maintenance. This represents the extreme of an enterprise approach to digital twins from the top down. But because that takes so long, we are trying also to widely catalyze digital twin opportunities from the bottom up. Hence, our priority to infuse and connect all of our existing offerings with our iTwin platform, starting with our Bentley infrastructure cloud, project-wise and Synqo for delivery and AssetWise for performance, and this year with natively hybrid capabilities in our modeling and simulation applications. However, even this is at best an evolution toward digital twin workflows. So, I am very pleased to say that we have now validated a breakthrough bottoms-up entry point for digital twin monetization that is, by contrast, instant on, both technically and commercially. Accordingly, our main departure for 2024 will be a focus on this asset analytics opportunity. It leverages AI with our iTwin platform to generate discrete and actionable insights from enlivened reality modeling of infrastructure assets, with the digital twin OT uniquely enhanced by ET and IT. Our learning curve in asset analytics was initiated with OpenTower, which we developed around a small acquisition of cell tower-specific AI for our structural modeling and iTwin platform. Since I showed this with operating results almost three years ago, the AI value to communications operators for CapEx provisioning and OpEx inspection and maintenance has grown exponentially. What is new are the global household names in the broadband infrastructure ecosystem looking to join forces to institutionalize cell tower digital twins. Our other foray to date in asset analytics is BlinkSeq. acquired and described late last year, where the monetized asset is a mile of roadway, and what we charge depends on how frequently the AI is run on fresh, crowdsourced imagery to detect actionable maintenance conditions. Because its crowdsourcing is ubiquitous, BlinkSee asset analytics can be literally instant on in a blink. In each asset analytics case, Our role can be behind the scenes, providing the iTwin experience cloud services, our AI as a service, and all of the automated processing at scale and at standard volume based pricing. Ecosystem partners can variously bundle and provide the survey imagery, their own proprietary asset specific engineering analytics, and enterprise integration with the owner operators environments. The financial opportunity is here and now. Our ARR for Asset Analytics Cloud Service is in three digits per cell tower. In 23Q4, OpenTower won procurements, including for new business ARR in seven digits. And in 2024, we are competing for eight digit subscriptions. And with our go-to-market coverage of transportation owner-operators, Blink-See is now also pursuing procurements that can exceed seven figures of ARR. In each of the cell tower and roadway verticals, it is thus already clear that there is an asset analytics TAM in nine figures, and that our existing global footprint gives us the pole position with both the owner-operators and the required ecosystem partners. So, for 2024, Our investment focus will be to organizationally consolidate OpenTower and Blinksy with further potential such acquisitions for growth and operational synergies and to leverage and expand our asset analytics head start. This will have a higher priority than continuing either our iTwin Venture program of fractional investments or even our traditional programmatic acquisitions of known mature companies to fill white space in modeling or simulation. As there don't tend to be potential asset analytics acquisitions beyond early stage companies, the capital requirements should fit well within what would have otherwise been the magnitude of our historical programmatic acquisitions. And while OpenTower and Blink-See themselves merit rapid investment to add capacity within their ripening markets, This is already sufficiently accommodated in our 2024 outlook for operating margin, including stock-based compensation, which continues our consistent annual improvement target of 100 basis points. Moreover, to the extent we succeed in making further acquisitions in asset analytics and thus presumably end up actually for accounting, consolidating early stage losses, which would have been below the line had we been merely VC investing to fund them, we will commit to corresponding increases in our ARR growth rate so that BSY's literal rule of 40, if you do the math for 2024, is not significantly in jeopardy this year. So while I have been generally emphasizing maintaining into our 2024 outlook our favorable overall operational and market consistency and momentum from 2023, this significant change to our acquisition priorities will make a difference. As you see here, the contribution to our business performance of ARR acquired with programmatic acquisitions had already been declining to a new low in 23Q4. But since in 2024, we will be targeting asset analytics acquisitions, which will necessarily be in early stages, this layer will probably end up more ARR light than ever before. This is reflected in our 2024 outlook for ARR growth, business performance, which is in the range of 10.5% to 13%. Nominally, that appears below what was our outlook for 2023 a year ago, and at the mid-range, below our 2023 actual outcome, But in fact, we plan for quite consistent underlying robust ARR growth, especially ex-China. But subject as measured, though, to these effects of the accelerating China subscription transition, of somewhat moderated escalation, and of lowered expectations for ARR from programmatic acquisitions. Finally, the wider range than 2023 reflects the greater variability in the emerging asset analytics business model. To summarize, we are responding to very healthy end markets with appropriate and by now proven initiatives to sustain 2023's performance with incremental upside now including asset analytics. In any case, I think you can take away confidence in our principle demonstrated investment premise. consistently delivering profitability after stock-based compensation, which has grown at a compounded rate remaining on the order of 16% per year since 2018 with distinctively transparent cash conversion. And now, over to Nicholas for operational perspectives behind these directions and developments. Thank you.

Thank you, Greg. First, I also want to congratulate our teams around the world who worked tirelessly to deliver another great quarter in a year. We accomplished a tremendous amount that positions us even better to take advantage of the favorable dynamics for infrastructure and that we see continuing into the foreseeable future. In fact, in Q4, we saw no major changes to the macro trends we have discussed throughout the year, and we expect these trends to continue in 2024. The engineering resources capacity gap to fulfill the demand for infrastructure is widening. In the most recent ACEC quarterly survey, US engineering firms across all sectors continue to expect a higher backlog of projects 12 months from now. This fits what we are hearing from users around the world. They are struggling to find the people and skills necessary to fulfill the demand. All of this is fueling the need for infrastructure organizations, large and small, to go digital, and leverage software to be able to do more with less in better ways. Moving to our performance in Q4, it was also very consistent with previous quarters, starting with our infrastructure sectors. Our larger sector, public works and utilities, continues to be the main growth driver for the company, benefiting from infrastructure investments around the world, whether in transportation, water utilities, or the electric grid. In this context, power line systems or applications for analysis and simulation of overhead transmission infrastructure continue to perform very well. In terms of resources, we are seeing consistent trends through last quarter. Sequent performed as expected, given the slowdown of new mine investments continuing to wait on its growth rate. Industrial remained mixed as growth with EPCs continued to slow down, especially in Asia-Pacific. the commercial and facilities sector remained relatively flat. Moving on to regions, North America continued its strong performance. The Infrastructure Investment and Jobs Act remains a tailwind. To date, about 35% of the $1.2 trillion, five-year total, has been announced for projects selected to receive funding. The majority of funding has been for transportation. Last call, we discussed how we help State Departments of Transportation in their efforts to win Federal Advanced Digital Construction Management System grants. I'm happy to report that many of those DOTs were successful in winning grants. We also supported DOTs in their federal SMART grant applications, which will fund technology projects to improve transportation efficiency and safety. Beyond transportation, IIGA investments have started in water infrastructure and for the electric grid as well. Most of the activities have been around improving the current grid, but we expect more growth to come from the much needed expansion of the electric grid to transmit electricity from renewable sources of energy, with the US permitting process as the main limiting factor. EMEA had another strong quarter led by public works and utilities across the region. We continue to see investments in transportation, in particular rail, as well as water and energy. In Asia Pacific, we had solid growth in Southeast Asia driven by outsourcing to local engineering talent. Australia and New Zealand continue to have strength in resources. Within India, the growth continued to normalize after many quarters of rapid growth. Regarding China, I was able to visit the country in December. On one hand, they're making huge investments in the energy transition, and the government is now mandating the use of 3D modeling for new road projects, both of which create opportunities for us. On the other hand, the preference for local software is real and growing, as well as a preference for perpetual licenses in case a geopolitical situation worsens. The overall takeaway being that we expect China to continue to wait on broader AR growth in the foreseeable future. But we continue to believe in the substantial longer-term opportunity. I would like to take a couple of minutes to talk specifically about our subsurface software company, Sequin. Their core business is mining, but we are seeing increased momentum with their software in civil engineering, which was obviously one of the main strategic objectives for the acquisition of the company back in 2021. Understanding the subsurface is critical for infrastructure. The largest element of technical and financial risk lies in the ground, according to the Institution of Civil Engineers. More than one third of project overruns are related to unexpected ground conditions. Using technology to help reveal what lies beneath can help reduce risk, cost and the environmental impact of infrastructure projects. A great example is HS2, the high-speed rail line that will connect London to Birmingham, and which requires a massive amount of earthworks. Approximately 21 million cubic meters of material was earmarked for excavation along the 19-kilometer rail route. The project team needed to identify efficiencies that could minimize waste and help HS2 meet its environmental commitments. By combining band infrastructure cloud and sequential professional applications, Mark McDonald was able to optimize mass hole movements during construction, which provided critical insight into material reuse across the project. It helped the team cut 400,000 tons of carbon emissions and saved the use of quarter of a billion liters of water. The 3D models also provided foundation for the development of a digital twin to support future Earthworks projects. We are seeing more of these subsurface civil projects. For example, the Genhausen Fulda rail line in Germany. Two-thirds of the route options run through tunnels. The firm Professor Quick und Kollegen was hired to perform the subsurface investigation to determine an optimal route option using sequent geoprofessional applications. Projects like these, which bring together engineering and subsurface data to support the full lifecycle of infrastructure assets, demonstrate both the value of integrated digital twins and the opportunity for Bentley. I will now hand over to Werner for details of our financial results.