Bentley Systems, Incorporated

Good morning, and thank you for joining Bentley Systems' Q4 2024 results and 2025 Outlook webcast. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems Executive Chair Greg Bentley, Chief Executive Officer Nicholas Cummins, and Chief Financial Officer Werner Andre. This webcast includes forward-looking statements made as of February 26, 2025, 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 26, 2025. After our presentation, we will conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley.

Good morning, and once again, thanks to each of you for your interest in MBS One. Following these, CEO Nicholas and CEO Werner will report on our quite satisfactory conclusion to 2024 and on our characteristically consistent financial outlook for 2025. My own purpose today, as we review our fifth year end as a public company, is more so to benchmark our longer-term cumulative progress against the priorities of shareholders. To that end, here's how we present in the opening slide of our introductory investor relations deck the differentiating virtues to which we, with our investors, we think, aspire. I believe the year 2024 substantially advanced our track record of achieving these objectives. Following our long-planned CEO succession that took effect in mid-year, Nicholas will describe further organizational changes to more directly orchestrate product innovation within our overall strategy and to reinforce our hallmark advantage of technically focused leadership as appropriate for our engineering market. And during 2024, subscriptions increased to 90% of total revenues, durably sustaining greater than ever visibility, quality, and consistency. Supporting our ongoing programmatic acquisition priorities in asset analytics, our landmark strategic acquisition in 2024 of Cesium has greatly broadened our platform ecosystem of geospatial digital twin developers. 2024's increase in adjusted operating income inclusive of stock-based compensation surmounted our established commitment of 100 basis points of margin improvement annually. With, in 2024, a greater preponderance than ever of revenues recognized radically and paid annually in advance, we directly and efficiently convert adjusted operating income, inclusive of stock-based compensation, into free cash flow net stock-based compensation. Notwithstanding the majority of our ALR being consumption-based, in recent years, and especially in 2024, we have increased the sustainability and visibility of double-digit ARR growth through a greater prevalence for accounts in our principal commercial program, E365, of multi-year floors and ceilings which graduate annually at a rate on average consistent with our overall NRR, now indeed at 110%. For the full year, organic ARR growth ex-China was comparable to and compounded consecutively from our year 2023. Such compounding would be a powerful investment virtue indeed, to the extent achieved reliably over a classic long term. So let's benchmark BSY's performance to date as a public company against the priorities of stockholders. With their per share orientation, Such a priority would be to manage share count to avoid compounding valuation. This shows the progression in shares owned by the Bentley family. Despite having divested shares at an average annual rate of about 1% of shares outstanding, we continue to hold the economic majority. A major factor in share sales by the Ebony Brothers is that distributions from our holdings or a company's deferred compensation plan have been triggered by a retirement, requiring the bulk of these shares to be sold to cover ordinary income taxation. Thankfully, by now, most such shares have already been distributed. Shown here are the remaining shares other than those associated with our convertible notes. Finally, added here is the accounting share count associated with our convertible notes, shown every year for which they've been outstanding in order to capture the full expansion of the company's capitalization. Our non-convertible net debt has been minimal at both the beginning and end of this period, So I think it's fair to use the compounded annual growth rate of 2.8% in this total share count as a proxy for growth in our capitalization. And reducing this by our dividend yield of about a half percent would provide an appropriate baseline for per share CAGR comparisons to financial performance metrics, starting with our reported revenues. But for better comparability, here's the same revenue history, but at constant currency, having compounded at an annual growth rate of 14.5%. While for tracking business performance, we have excluded growth from onboarding our platform acquisitions, we need not do that here because the foregoing share growth sufficiently accounted for the capitalization increases to finance. the platform acquisitions. Professional services revenues, highlighted here, accumulated with the cohesive acquisitions. I am a proponent of the long-term strategic rationale for maximum digital integration, but in the meantime, this revenue source adds volatility and subtracts from profitability, so we're better off to moderate rather than to maximize it. License revenue, highlighted here, depends on the vicissitudes of China, and also perhaps S&B budget push. Thus it's notable that constant currency, subscription revenues, which we thus regard as our key revenue metric, have grown to constitute 90% of our total, having compounded at an annual growth rate of 16.3%. Hence, to double subscription revenues over the five years from 2020, here's what would be required for 2025. Subscription revenue is, of course, literally led by our key performance metric, ARO. Here at each year end, at constant 2024 budget exchange rates. and within which, highlighted here, is the breakout of ARR cumulatively onboarded with the platform acquisitions of sea plants and power line systems. This overall ARR in constant currency has compounded at an annual growth rate of 16.3%, interestingly, indeed the same as for constant currency subscription revenue. Highlighted here is what turns out to have been ever less significant ARR onboarded annually, the darker top slice, and cumulatively with programmatic acquisitions. Our ARR in China, highlighted here, has declined substantially and structurally in recent years. So we can here measure that excluding China, but not Russia, and excluding all onboarded ARR from platform and programmatic acquisitions. We have compounded ARR in constant currency at an annual growth rate of 13.6%. And back to overall ARR, here is the level of ARR at the end of 2025 that would complete down over the five years from 2020. To measure the compounding of profits and of free cash flow, we're obliged to do without constant currency occurring. Here is the adjusted operating income as reported. However, for each of 2020 and 2021, in setting appropriate baselines for our subsequent regular margin improvements, we also reported adjustments corresponding to unexpected windfall expense savings amounts, primarily in travel and events that are highlighted here. And for all purposes, we measure operating margins after the cost of stock-based compensation, highlighted here, as our shareholders recognize It's economic fungibility with cash compensation. In this resulting primary profitability measure, adjusted operating income with stock-based compensation, and with the pandemic adjustments for the early years, our compounded annual growth rate has been 20.4%. And here are the amounts required for profitability in 2025 to have doubled over these five years from 2020, highlighting the range implied by including the pandemic adjustment or not. Converting this profitability relatively transparently, here is free cash flow as reported. And highlighted are the same pandemic adjustments, but for cash flow purposes, tax affected at a blended 21% tax rate. But we don't consider cash flow to be truly free until after netting out the amount needed for stock repurchasing to offset what would otherwise be shared dilution from stock-based compensation, highlighted here. Our resulting free cash flow generation, net of stock-based compensation, and pandemic adjustments has compounded at an annual growth rate of 18.5%. And here are the amounts required for such free cash flow, net of SBC, in 2025 to double over these five years from 2020, again highlighting the range implied by including a pandemic adjustment or not. Finally, highlighted here are the proportions of annual pre-cash flow net of SBC allocated to dividends. And we will shortly see with various presentation of our 2025 financial outlook range, the extent to which these benchmark key financial metrics and their taggers over our four plus public years to date can be expected to reach a classic compounding threshold of doubling over five years. Most importantly, I regard that our company's aspiration and expectation should be to sustain at least this benchmark compounding for each succeeding five years indefinitely. And for our management team that is bringing this about, now over to Nicholas and then Barron. to review 2024 and to provide DSY's consistent outlook range for 2025. Thank you.

Thank you, Greg. I wanted to start by expressing my gratitude to our colleagues for delivering another strong quarter and year. In terms of AR growth, profitability, and free cash flow, we had a strong finish to 2024. The global demand environment remains robust across most sectors and geographies, and our users continue to be optimistic about end market conditions. We also announced a new Chief Operating Officer and organizational changes to accelerate innovation, which I will touch on later. We entered the year well aligned with our users' priorities and well positioned to continue strong financial performance in 2025 and beyond. Our 2025 outlook is consistent with our longer-term framework of low double-digit AR growth 100 basis points of margin expansion, and strong cash flow generation. Focusing now on Q4 highlights, AR growth was 12% year-over-year and 12.5% excluding the impacts of China. Taking into consideration the impact of onboarded programmatic acquisitions and rounding, the results were very comparable to the year-ago period. Turning next to our commercial models, Our E365 program continues to drive strong growth, in particular from renewals with higher floors supported by consumption growth, and still a sizable amount from conversions. Across our commercial models, our application mix accretion remains strong, but moderated by about 100 basis points, while net revenue retention rebounded to our high watermark of 110%. For several reasons, we no longer find application-mixed accretion to be a useful measure of growth within existing accounts. One of those reasons is because it misses growth from offerings that are not user-based, which we anticipate seeing more of, such as Bentley Asset Analytics. We therefore intend to introduce a new indicator that better reflects overall consumption growth. We believe we have a long runway of growth within our accounts as they continue to adopt more sophisticated products and complementary products. In Q4, we also added 300 basis points of AR growth from new logos, mainly SMB. This includes adding more than 600 new logos to our online store for the 12th straight quarter. AR growth from new logos in the quarter would have been even higher if not for an unprecedented large proportion of SMB prospects, having instead chosen perpetual licenses over subscriptions in the quarter. Our performance by infrastructure sector in Q4 was consistent with previous quarters. Public works utilities finished the year with strong momentum, fueled by robust infrastructure spending by governments around the world. Despite continued softness in new mine investments, resources growth remained solid, while industrial and commercial facilities maintained modest growth. Looking at our performance by region, EMEA had a standout quarter with strength across most of Europe as well as the Middle East. America has delivered strong growth with consistent trends within North America and Latin America. Despite uncertainties about federal spending in the U.S. under the new administration, The broader infrastructure engineering community expects investments in infrastructure to continue, though in a changed mix. Funding is likely to shift to more traditional power sources from alternatives and to more road work instead of high-speed rail. It has also been announced that this administration will be investing significantly in AI, which means increasing data center and power transmission build-out. We also expect permitting reform to be a top priority for this administration and Congress, which will accelerate new power transmission corridors as well as new mine exploration, benefiting our power line systems and sequent businesses. Bentley Systems is well positioned regardless of the type of infrastructure that is being funded due to the breadth of our software portfolio. Asia Pacific was once again led by India and Southeast Asia, and sentiment remains very strong for 2025. China's performance continues to face the same headwinds, soft economic conditions and continued shifting preferences by state-owned enterprise accounts for local software and, at best, perpetual licenses. Because of these ongoing headwinds, we anticipate a decline of AR in China this year. Note that China now represents less than 2.5% of our total ARR. Turning to products, we made great progress across our product portfolio in 2024. As discussed previously at Yale Infrastructure 2024, we introduced Open Site Plus, the first of a new generation of data-centric and AI-powered infrastructure engineering applications. And we strengthened our platform with the acquisition of Cesium, adding market-leading 3D geospatial capabilities and an active developer community to Bentley. We were also pleased with the performance of Bentley Asset Analytics, which we introduced in 2024. Our portfolio of products used to create digital twins of infrastructure assets and analyze their conditions with AI. It was a year of learning for us and our users as we've both looked to maximize the potential of this emerging growth area. For instance, while our initial focus was on asset operations, we uncovered additional opportunities in construction with initial subscriptions tied to the duration of projects. Over time, we expect asset analytics to become a large opportunity for us. Our product strategy is aligned with industry needs. You may recall that we discussed the AEC Advisor State of the Industry Survey two years ago. I would like to share some highlights of their most recent survey as it aligns well with our product investments to date and going forward. Each quarter on these calls, we discussed the widening engineering resources capacity gap. There simply aren't enough engineers to meet the demand for better and more resilient infrastructure. This challenge is reflected in the survey results. When asked about their top objectives today, the CEO cited workforce productivity as a top priority. Firms need digital solutions that increase workforce productivity, which we are well positioned to provide. While we have a shortage of engineers in infrastructure, we don't have a shortage of data. So many assets generate gigabytes of data every day, whether from sensors on a bridge, a utility network, or any other system. We have spoken many times about how only a small fraction of this data is ever analyzed and reused. The vast majority of infrastructure projects start with a blank screen. When asked which technologies are most important today, CEOs focus on data management. This shows that engineering firms are recognizing the importance of better organizing, managing, and leveraging their data to improve the productivity of their organizations and individual engineers. All of this provides opportunities for Bentley Infrastructure Cloud, and in particular, product-wise, powered by iTwin, which helps to extract data from any engineering file, whether Bentley or third-party, and organize that data to make it queryable and reusable. This focus on better data management is also driven by artificial intelligence. Firms recognize the opportunity that AI presents to help them make the most of their data, including reusing data through generative AI to vastly improve workforce productivity. They are investing accordingly. The top two areas of investments are digital transformation and compiling datasets for machine learning. We had anticipated this opportunity many years ago as we started to invest in AI with an initial focus on asset performance and now expanding to product delivery, for example, with the introduction of OpenSight Plus in Q4, which I mentioned previously. Going forward, engineering firms expect to focus more on meeting clients' digital requirements, with many also looking towards new services and business models. And they also see increasing value in digital twins in the operations phase of the lifecycle. Both of these points underscore the opportunity for Bentley Asset Analytics, as we previously discussed. Engineering firms can leverage Bentley Asset Analytics to offer services for asset operations and maintenance. Across the board, from our engineering and geo-professional applications, to Bentley Infrastructure Cloud, to our AI-powered digital twin solutions, including Bentley Asset Analytics, Bentley is well-positioned as the partner of choice for infrastructure engineering firms, as well as owner-operators, our product investments being in line with current and emerging industry needs. AI is transforming every industry, and ours is no exception. We intend to continue to lead the way for infrastructure AI, which is why we announced key organizational changes at the start of the year. We are excited to welcome James Lee as our Chief Operating Officer. James joined us from Google, where he served as General Manager for Startups and Artificial Intelligence at Google Cloud. Prior to Google, James spent 12 years at SAP, including COO for SAP Ariba and Fieldglass, and as CEO and GM for Sales for SAP Greater China. James is responsible for strengthening our cross-functional alignments across planning and execution, driving operational excellence, and overseeing China, Japan, and portfolio development, including growth initiatives such as Bentley Asset Analytics. The other organizational change that we announced was the consolidation of product development under Chief Technology Officer Julien Mout to better align product execution with technology strategy and accelerate innovation. We believe this move puts us in a stronger position to capture the many growth opportunities that we have opened up with infrastructure AI, from Bentley Asset Analytics to the next generation of Bentley Open Applications. And with that, I will turn it over to Werner to detail our Q4 financial results and outlook for 2025.