Bentley Systems, Incorporated Price & Performance (BSY)

I believe the year 2024 substantially advanced our track record of achieving Following our long planned CEO succession that took effect in midyear, 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 leader as appropriate for our engineering line. And during 2024, subscriptions increased to 90% of total revenues durably sustaining greater than ever visibility quality and consistency. Supporting our ongoing programmatic our landmark strategic acquisition in 2024 of Cesium, has greatly broadened our platform ecosystem of geospatial digital twin developments. Twenty twenty four'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 rather 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 ARR being consumption based, in recent years and especially in 2024 we have increased the sustainability and visibility of double digit ARR growth to a greater prevalence for our accounts in our principal commercial program, E365, of multimer floors and ceilings, which graduate annually at a rate on average consistent with our overall [indiscernible] down 110%.

For the full year, organic ARR growth ex China was comparable to and compounded consecutively from our year 2023. Such company would be a powerful 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 dilution. 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 Bentley Is that distributions from our holdings and the company's deferred compensation plan have been triggered by a retiree, requiring the bulk of these shares to be sold. The color of ordinary income taxation. Thankfully, by now, most such shares have already been restricted. Shown here are the remaining shares in each year's average fully diluted count 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 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 a proxy for growth in our capitalization. And reducing this by our dividend yield of about 0.5% would provide an appropriate baseline for per share CAGR comparisons to financial performance metrics starting with our reported revenues. But for a 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 Maximo 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 SMB 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 such here's what would be required for 2025. Subscription revenue is of course literally led by our key performance metric ARR. Here at each year end, at constant 2024 budget, exchange rates And within Rich highlighted here is the breakout of ARR, cumulatively onboarded with the platform acquisitions of Sea Plant and PowerLine 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 [indiscernible] 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 twenty twenty five that would complete doubling 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 accounting. Here is adjusted operating income as we appointed However, for each of 2020 and 2021, in setting appropriate baselines for our subsequent regular margin improvements, we also reported adjustments corresponding to 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 its economic fungibility with cash compensation. And 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 share 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 SDC in 2025 to double over these five years from 2020 again highlighting the range implied by including the pandemic adjustment or no? Finally, highlighted here are the proportions of annual free cash flow net of this allocated to dividends. And we will shortly see with Valerie's presentation of our 2025 financial outlook range, the extent to which these benchmarked key financial metrics and their CAGRs 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 Ned Barner. To review Bentley four Q4, and to provide DSY's consistent outlook range, for 2025. 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 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 impact 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 E-three 65 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 [indiscernible] where our net revenue retention rebounded to our high watermark of 110%. [indiscernible] For several reasons, we no longer find application mix 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 Bentley 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 through our online store for the twelfth Straight. 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 Looking at our performance by region, EMEA had a standout quarter with strength across most of Europe, well as The Middle East. Americas delivered strong growth with consistent trends within North America 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 change 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 significant in AI, which means increasing data Bentley, and power transmission build out. We also expect permitting reform to be a top priority for this administration and Congress, which will accelerate new transmission corridors as well as new mine exploration, benefiting our PowerLine 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. [indiscernible] Asia Pacific was once again led by India and Southeast Asia.

And sentiment remains very strong for 2025. China's performance continued 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. [indiscernible] Turning to products, we made great progress across our product portfolio 2024. As discussed previously, at the end infrastructure 2024, we introduced OpenSight Plus, the first of a new generation of data centric and AI powered infrastructure engineering applications. We strengthened our platform with the acquisition of Cesium, adding market leading three d geospatial capabilities and an active developer community to Bentley.

We were also pleased with the performance of Bentley Bentley Analytics, which we introduced in 2024. Our portfolio of products used to create digital twins of infrastructure assets, and anonymize their conditions with AI. It was a year of learning for us and our users as we both look 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.

We Our product strategy is aligned with industry needs. You may recall that we discussed the AC 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 discuss the widening engineering resources capacity 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're well positioned to provide. While we have a shortage of engineers and 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 [indiscernible] and leveraging their data to improve the productivity of their organizations and individual engineers. All of this provides opportunities for Bell Infrastructure Cloud and in particular, [indiscernible] Which helps to extract data from any engineering file whether Bentley or third Bentley, and organize that data to make it queryable and reusable. [indiscernible] 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 to build 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 after [indiscernible] at Google Cloud. Prior to Google, James spent twelve 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 alignment across planning and execution, [indiscernible] and overseeing China Japan, and Portfolio Development including growth initiatives such as Bentley Analytics. The other organizational change that we announced was the consolidation of product development under Chief Technology Officer, Julia Mutt, 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 outlook Thank you, Nicolas. We are pleased with our finish to a solid year of financial performance. Total revenues for the fourth quarter were $350,000,000 up 13% year over year on a reported and constant currency basis, And for the full year, total revenues were SEK 1,350,000.00 up 10% on a reported and constant currency basis.

Strong subscription revenues in the fourth quarter and full year were partly offset by lower services revenues due to reduced Maximo related work within our digital integrated Cohesive. Subscription revenues now represent 90% of total revenues, up more than two percentage points improving the overall quality of our total revenues in terms of growth consistency, predictability, and margin contribution. Subscription revenues grew 16% year over year for the quarter and 13% for the full year in reported and constant currency. The growth rate for the full year, of course, tends to more closely align with our year over year constant currency ARR growth.

Our SMB and E365 initiatives continue to be solid contributors with E365 now representing 42% of 2024 up from 38% in 2023 and thirty two percent in 2022. Compared to license revenues, SportDOG1 grew 11% year over year in reported, and 12% in constant currency And for the full year, we're flat in reported and constant currency. Our service revenues declined 21% for the quarter, and 18% for the year. In reported and constant currency. Our last twelve months recurring revenues, which include subscriptions, and the small amount of recurring services, increased by 13% year over year in reported and constant currency and represent now 91% of our total revenues, up two percentage points year over year. Our last twelve months constant currency account retention rate remained at 99% and our constant currency recurring revenue net retention rate rebounded to 110% led by accretion within our consumption based E365 commercial model. We ended Q4 with ARR of €1,283,000,000 at quarter end spot rates. On a constant currency basis, our trailing twelve months ARR growth rate was 12%, year over year and 3.2% on a sequential quarterly basis. Consistent with this year's expectation for our seasonally biggest contract renewal quarter. Excluding China, our ARR growth rate was 12.5%.

Year over year. Our GAAP operating income was €61,000,000 for the fourth quarter, and $3.00 €2,000,000 for the year. I've previously explained the impact on our GAAP operating results from deferred compensation plan liability revaluations, and acquisition expenses. Two other items that were recognized in our financial statements in 2023 will need to be considered for profitability comparison purposes. During twenty twenty three Q4, we initiated a strategic realignment program our first since 2020. We incurred a realignment charge of 13,000,000 mainly for severance, causing the first half of twenty twenty four to appear relatively profitable as we work to reinvest associated run rate savings into priority areas, such as AI and product development, and marketing. We were fully reinvested by the beginning of the third quarter of twenty twenty four. And secondly, during twenty Bentley three Q4, within our income tax line below operating income, we recognized a net discrete income tax benefit of $171,000,000 relating to an internal legal entity restructuring of our Sequin IP ownership. Moving on to adjusted operating income with stock based compensation expense. Our primary profitability and margin performance measure. Adjusted OI with SBC expense was €75,000,000 for the quarter flat year over year with a margin of 21.5%.

The margin decline of two fifty basis points is primarily a result of our OpEx seasonality impacted by the timing of the full reinvestment of our run rate savings from the realignment. Combined with our fourth quarter being seasonally our highest OpEx quarter, due to larger promotional and event related activities and costs. For the full year, our adjusted euros up SEK 47,000,000 or 15%.

With a margin of 27.5%, up 110 basis points year over year, in line with our expectations and outlook for the year. Our operating cash flow was €82,000,000 for the quarter, and $435,000,000 for the year, up 18,000,000 or 4%. Remember that our fiscal year twenty twenty three cash flow from operation was increasing 52% over 2022 due to a significant collection delay from Bentley two Q4, into twenty three Q1. Benefiting from strong collections at the end of the year, our 24% conversion of adjusted EBITDA to cash flow from operations was above our expectations at 94%. Starting for 2025, rather than guiding to such a conversion rate, we will provide an outlook range With regards to our 2024 capital allocation, along with providing sufficiently for our growth initiatives, we deployed free cash flow as follows: €130,000,000 in acquisitions, €147,000,000 paying down bank debt, €77,000,000 effective share repurchases to offset dilution from stock based and €72,000,000 on dividends. At the end of Q4, our net senior debt leverage was 0.2 times adjusted EBITDA, including our 2026 and 2027 convertible notes as debt, our net debt leverage was 2.9 times down from 3.5x at the end of twenty twenty three.

Our five year senior secured credit agreement entered into in October 2024 provides a €1,300,000,000 revolving credit facility and an incremental €500,000,000 accordion feature and sufficient flexibility to address the January 2026 maturity of $690,000,000 of convertible debt. Our existing debt is protected from high or rising interest [indiscernible] by virtue of very low fixed coupons on our convertible notes and our €200,000,000 interest rate swap, expiring in 2030. Our 2025 financial outlook is consistent with our sustained objectives of low double digit ARR growth, approximately 100 basis points of annual margin expansion, and strong free cash flow conversion. It reflects our confidence in continued favorable market conditions and in the momentum of our growth initiatives. Based on current exchange rates, we anticipate total GAAP revenues in the range of $1,461,000,000 dollars to $1,490,000,000 euros or $1,481,000,000 to EUR 1,510,000,000.000 in constant currency, reflecting an approximate 1.5% headwind to revenue growth in constant currency. Our outlook range for our Mainstay subscription revenues representing 90% of total revenues, is growth between 10.512.5% on a constant currency basis. We expect that our less predictable and less controllable together representing the other 10%, will remain relatively flat on a constant currency basis.

Going back to Greg's slide, based on our outlook, we will have doubled our constant currency subscription revenues. From 2020. Our outlook range for constant currency ARR growth is also 10% to 12.5%. When compared to our ARR growth outlook range for 2024 the low end of our 2025 range is consistent, but we are narrowing the top end of our range by 50 basis points taking a more conservative view on China where we expect continued attrition. While as in 2024, we believe that asset analytics represents incremental upside opportunity, we have found that a significant portion of use cases are during the construction phase of an asset which may not all be accounted for, SAR. So again, based on our outlook, we will have doubled our constant currency AR from 2020. We expect an adjusted operating income with stock based compensation margin of approximately 28.5%. To deliver on our standing commitment to expand our operating margin by approximately 100 basis points. And again, our adjusted OIBF stock based compensation will have doubled from 2020 when normalized for 2020 COVID windfalls and we will be close to doubling without normalizing. Such windfalls. Our outlook range for free cash flows is EUR €450,000,000 to $455,000,000 This considers cash interest of approximately zero net of the payments we expect to receive from our interest rate swap, cash taxes of approximately $75,000,000 and CapEx of approximately $20,000,000 Based on the expected seasonality of collections and expenditures, we expect that approximately 55% to 60% of our free cash flows will be generated during the first half of twenty twenty five.

Finally, in relation to free cash flow less stock based compensation, we expect to fall short of doubling from 2020 without normalizing for COVID-nineteen infolds. However, we expect to double when normalizing for such windfalls. And in terms of capital allocation, we are announcing another annual increase of $0.01 in our quarterly dividend which affords compounding cash flow to be allocated to programmatic acquisitions and debt service. To help you with your models, we expect our sequential ARR and revenues growth seasonality to be back half loaded similar to 2024. And our OpEx seasonality will be closer aligned with 2023 now that the volatility from our strategic realignment is behind us. We expect stock based compensation to decline to approximately 5% of revenues in 2025 and then to trend back up towards a long term norm of 6%. And I also include here on this slide additional explanations on interest [indiscernible] effective tax rate, operating depreciation and amortization, and outstanding shares. And with that, I think we are ready for Q and A. Over to Erik to moderate. Thank you.

Thanks, Bernard. Before we begin, I just wanted to remind please only ask one question so we can get to everybody today. Our first question comes from Matt Hedberg from RBC.

Oh, there we go. Sorry about that guys.

Thanks for the question. And congrats on another good year. I think, Greg, you really gave us some perspective On the results since the IPO, it was sort of great to see the progression and it seems like we should expect more of that On the call, you noted a robust demand environment You noted that China continues to be a drag and it seems like you addressed that at the high end your full year ARR range 50 bps lower than last year. Guess that said, there's a lot of positivity that you talked about the call in terms of potential drivers. I guess, when you step back and you think this year you were near the high end of the ARR range there in 2024, What are the one to two things that could propel you to the higher end of this ARR range as you kind of embark on a new calendar year?

Nicholas, you're yourself to that?

I will be happy to. So the overall environment, demand environment is robust. You know that mining has been a bit slow in the past more than a year now, year and a half or so.

It a bit of a subdue environment. For new mine, it's exploration or enhancements or major expansions of existing mines If this changes because of, for example, acceleration of permitting with reform in The U. S. That is leading to new mine explorations. This could be an extra tailwind. The business is already very, very strong when it comes to PLS, PowerLine Systems for the transmission grid. But if permitting reform does accelerate, and it leads to an acceleration of the electric grid. This will be an additional [indiscernible] So I think this this will help. Now, the two drags that we've seen for AR have been China as discussed many, many times. And then even though it's a very small percentage of our business, it's a single digit, Commercial Facilities. If this were to improve as well, then of course, this will help. Look, in general, as we start the year, the trends are remarkably consistent with what we said every quarter last year. So the demand environment is just very similar to what we've been discussing for the past quarters. So anything that has been holding us back in 2024 if that improves, then of course, this will be extra tailwind.

Thanks a lot. Best of luck. Thanks, Matt. Next question comes from Jason Celino from KeyBanc.

Great. Thank you. Nice to see you at the morning. I did want to follow-up on the permitting reform, So I agree with you that it could be a significant catalyst. Know we're still pretty early, but have you seen any signs that permitting reform has been introduced or how should we think about timing? Because I imagine you know, the legislation has to go through, and then customers have to approve things, but how should we think about that? Have you seen any signs today?

Well, we've seen an executive order calling for permitting reform, but it's still very early indeed, yes, a new U. S. Administration So no impact yet Ma'am?

It is a bipartisan priority however, and I think we can be very hopeful it will be accomplished during the year at least. Okay. Of course, that doesn't cause projects to start flow immediately because there still is a need for permitting. But I think it's a matter of finally when, not if, in The U. S. Permitting reform. Next question comes from Sidi Panagray from Zuho.

Thank you. I want to ask about the macro environment How do you compare? And if you look at the data point, how it trending versus last year? And then specifically in The U. S. Now election is over and administration firmly in place. How do you characterize the change in priorities there versus expectation? And also, do you see any impact from those initiatives? I'm going to ask you, Nicholas, to talk about the world at large and maybe I'll come back to The U. S. Okay. Happy to. Happy to. So, look, in Europe, for example, despite the political volatility we've seen in France and very recent elections in Germany, elections back in Q4 when it comes to The UK or the second half of last year. There is a just strong alignment that infrastructure investments are needed. So it is a bipartisan topic. If you're not just in The U. S, as Greg is going to explain, but but in Europe as well. The new government in The UK is as favorable, if not more, for investments in infrastructures. We expect level of investment to be the same, if not higher, In Europe, the new European Commission has laid out its priorities of competitiveness and resiliency and security and every single one of these priorities is highly related to infrastructure.

In fact, today, the European Commission talked about its plan for increasing competitiveness of Europe and it again referred to additional that's clear. So we see infrastructure investment going strong all around the world. Wide consensus that this is needed to support the economy, to improve the quality of life, in some regions to secure energy and to make sure infrastructure is resilient in front of climate change. Those are very let's say, secular trends. The only country where where we've seen a slowdown, as we discussed many times, is China. If I go back to The U. S. Of course, we have a purposefully unpredictable administration here now. But the engineering organizations in The US whose business is to read these tea leaves are Not concerned. And my view of it is that they are already at their capacity, their resource capacity and do not see any possibility that there will be less federally funded infrastructure work even though its mix will somewhat change. Possibly to our advantage.

Thank you. That's helpful color.

Thanks. Next question comes from Kristen Owen from Oppenheimer.

Hi, good morning. Thank you for the question.

Nicholas, both you and Werner touched on this in your prepared remarks. But the expectations around the asset analytics platform notably in construction, just given what appears to be an acceleration of the labor gap in some of those construction trades, How quickly do you see your site management capabilities ramping? And how does the monetization model differ from something in construction versus what you've previously outlined for us in both telecom and highways? Thank you.

So when it comes to asset analytics, the commercial model, whether it's capabilities are used the moment of construction and during operations are the same. It's really asset based. The only question is how do we treat that revenue? If it's for construction, for example, installing new equipment on a cell tower, and triple checking and that it's well installed after the installation Then it's not a recurring revenue for us as opposed to if it's used for continuous monitoring of the cellcutter, then it will be more it will be recurring. So that's the difference. But it's still asset based when it comes to towers, it's going to be MAL based when it comes to the road network monitoring and not user based.

And we like both opportunities that the majority is in asset operation. [indiscernible] a digital twin from construction, we think we stand a good chance of, in fact, having it renewed during asset operations, but that's also often a different sale to a different party, and we can't take that for granted. But all of the all of the opportunities are burgeoning in this, and we're learning about the business model potential for this asset based monetization.

Thank you. Thanks, Kristen. The next question comes from Dylan Becker from William Blair.

Hey, guys. Appreciate the question.

Maybe Nicholas for you, wanted to you called out kind of JC and Julian coming on board Wondering if you could kind of highlight or flag the opportunity and kind of what excites you most. You called out kind of data readiness, data [indiscernible] and the streamlining of the product development motion under Julian's team, how that can kind of accelerate value and innovation for customers as well. Thanks, guys.

Yes. Well, my excitement is on AI. Yes, AI, it truly is our generation's paradigm shift. Yes. It's a profound technological change And it's the reason why we decided to, let's say, simplify our product and technology organization in order to be able to operate with more agility, more precision, more speed to accelerate innovation, right? So So that's the driver behind the reorganization of our product technology organization under our CTO, So there's strong alignment between procurement execution with technology strategy which is very needed at this time of profound changes. But yes, you indeed noted it as well. James, who joined us from Google, had the responsibility of AI at Google Cloud, AI investments at Google Cloud. So he's coming with a formidable network and in the, let's say, broader software community when it comes to AI investments, and a lot of lot of knowledge to share with us, Yang, to help accelerate those investments.

I might say this is exciting to me because you know, taking hierarchy out of our product organization is meant to hark back to our roots, if you like, with the Bentleys primarily being hands on and early identifying new opportunities. There was nothing wrong with how we were organized before, but our business has become so steady. You've heard me say, I'd like to introduce some some volatility, take some risks, place some markers, and I'm very excited about this new team doing that.

Great. Thank you, guys. Thanks, Dylan. The next question comes from Jay Bilishanar from Griffin Securities.

Thank you. Good morning.

You noted the responsibilities for the new Chief Operating Officer.

Are there two or three principal objectives or executables for the COO role that you would like to see for this year and beyond. For example, at the investor meeting in Vancouver a few months ago, you noted that you had integrated your customer success and account teams Maybe talk about how that's going or other go to market objectives that the COO has? Thank you.

Thanks for that question, Jay. And then just to be clear, the scope of the CEO is quite different from the scope I had when I was a COO. So the sales and marketing and success management teams, they all report straight to me. Yeah. But we did combine indeed account management and success management under Brock, our Chief Revenue Officer. And this has helped tremendously in making sure that we have one account plan We're actually clear for each account on what are the growth opportunities for consumption. And we execute very seamlessly about it. The overall let's say, team here is Simplify The same way that we've combined account and success management together On the product side, we've combined product and technology together. So simplification in order to have more agility be able to execute with more precision and speed. So now when it comes to James as our COO, so he does have a cross functional role helping in both planning and execution and making sure that we are coordinated. It will be at a high level of what I just described. It will be, for example, on the industry solution dimension that we've talked about many times, Jade, now reports to him.

Right? So keeping the industry dimension from planning all the way to go to market. But he is also in charge of portfolio development. And a big priority we have is on asset analytics, talking about which he has also the responsibility of some of our growth initiatives including asset analytics.

I might say that something that comes out from James is he is a very he's a proponent of commercial innovation and commercial models and engineering, I use the term engineering the way in which we monetize and bring us some new learnings from that that I'm enthused about.

Thanks, Jay.

Next question comes from Michael Funk from Bank of America.

Yes.

Thank you for the questions.

So, Nicholas, I think in your prepared remarks, you mentioned that, the administration might be some shift in infrastructure spending So for example, you know, towards roads and away from other projects, could that shift create an air pocket at all in demand from those customers [indiscernible] their priorities maybe from one project to another. Just the uncertainty created by that potential shift, should we expect any kind of air pocket [indiscernible] I don't think so for the simple reasons that the engineering firm in The U. S. Already are quite busy and their backlogs are extending one year, if not more, out. So it's going to be a shift in terms of projects, new projects potentially coming in. Yes. But there's a bit of a lag before it hits actually the engineering firms and then their use of our software, right? Now we are very well positioned to Bentley from any infrastructure investments regardless of the infrastructure assets, whether we're talking about more traditional energy productions or renewables, whether we're talking about roads as opposed to railway, a major expansion of airports, across all infrastructure assets. We have a very broad portfolio of products to help.

Yes. I'll just say generally, I think the expectation continues to be that the spending is pushed further out for longer. Which corresponds to the capacity in any case And there is discussion in Congress at the federal level in The U. S. Of the [indiscernible] infrastructure [indiscernible] following the II and of course our our users are very experienced readers of these tea leaves, and they have great confidence.

Great. Thank you both. Had a question about the competitive environment, Maybe you could talk about how it has fared in the last twelve months. We've noticed that some of your competitors claimed that they've taken some share from you. So could you maybe comment on that and talk about what do you see evolving across different markets? I think it's clear that for those competitors who are very focused on commercial facilities, for example, because of the slowdown, they've been trying very hard to get into infrastructure, civil infrastructure in particular. You can see our growth, which is very consistent. We're not losing share to anyone. We've seen some competitors doing some desperate measures for example, dropping their price quite a lot. It was quite reassuring to see that our accounts are sticking with us. That this is not enough of an argument for them to use use competitive products. Look, when it comes to infrastructure, there's just no other competitor out there that is that dedicated to infrastructure and has that breadth and depth of portfolio of products that we have. So the fact that we remain very focused over the past few years is definitely paying dividends.

No pun intended.

Thank you. Great. Thanks. The next question comes from Joshua Tilton from Wolfe Research. Hey, guys. Can you hear me? Yes.

I kind of have a high level one, maybe just backing up a little bit. I know a bunch of questions have been asked, but Maybe just everything you spoke to on the prepared remarks, the election, the changes, going on in China, it just it feels like there's a lot of moving pieces. And I guess if we were to simplify all the moving pieces that you see heading into this year, do you believe that the demand environment is more, less or the same favorable in 2025 than it was in 2024? And I'm just I guess I'm just trying to understand like how we're supposed to interpret all the different moving pieces as it pertains to [indiscernible] demand in the business environment for you this year?

Well, I think the overall picture is that things are full up The infrastructure engineering community could hardly be any busier elsewhere and that won't change foreseeably but in China, I have to say how disappointing China is. It's qualitatively this is the first year 2025 in which we do not have an plan to grow or even maintain our level of business in China. Every other year, we haven't counted on it, but we have believed it would be possible because of the good match between our products and the demand in China. We have hoped we could at least sustain it. Our plan for this year is a plan to continue to lose business in China. It's at the level where the state owned enterprises, the CEOs have to personally vouch for any use they make of American software. They have to attest that there isn't a domestic alternative. It's never been that bad before. And in that environment, we can't hang on. So that is I think, the principal difference. That's the half point at the top. There is not a way that we can see to maintain our business in China during 2025.

Who knows what might happen geopolitically? I suppose that we should be putting nothing outside the realm of possibility. But we don't see any possible way to sustain that in 2025. Elsewhere in the world, that's not the picture at all.

Elsewhere in the world charge case, it's very consistent and it's very favorable.

Yeah.

So I took that to summarize. Yeah. Consistent favorable demand backdrop the only exception being out in China.

Super helpful. Maybe just a very quick follow-up on the China I just want to make sure I understand the view correctly. In the past, the China headwind has been mostly ARR and the choice for perpetual. Now going forward, you're saying it's not just that there's a headwind to total business, because they are choosing to look for local alternatives instead of U. S.-based software?

There are highlights in Hong Kong and SMB But [indiscernible] economy there and the change in spending is also notable. We'd be talking about that alone if it weren't for the geopolitical issues as well. So combined This year, realistically, we can't even get back to a level in China.

Makes sense. China, you're missing out.

Thank you, guys.

Well, it's still 25% of the world's infrastructure engineering, and we still have a good mix between our our products and and demand there. And we just need to get somehow more creative yet. And that's where James with on the ground experience in China and different business models, it's one of his projects. To consider how we get ours in the long term there. The next question is going to come from Matt Martino from Goldman Sachs.

Yeah. Thanks for squeezing in here, guys. Greg Nicholas, you guys made reference to the launch of Open Sight Plus and some of the AI powered features there. It's clear Bentley Bentley to infuse AI across the product portfolio. So I'm wondering to what extent these new AI powered features are starting to benefit your renewal activity and how you think about the opportunity more holistically to monetize your growing AI portfolio over time? Thank you.

I think it's the revenue impact is going to be very marginal. This year when it comes to OpenSight Plus because the product is in early access and we're planning GA towards the end of the year, right? While we're having or generating traction, with AI is with asset analytics. So it's AI applied to asset operations. We think the opportunity is big on both fronts.

AI for asset analytics, for asset operations. This is a we talked about it at some point, a potential on top Turn off nine digits. And then when it comes to AI for, let's say, design, we just had a billion of this. We think this has a lot of potential not just to sustain our growth, but in the long term. Even potentially accelerate it.

Thanks, guys. The last question comes from Blair Abernathy from Rosenblatt Securities. Thanks guys and nice quarter.

I just wanted to ask you maybe dig in a little bit more on the data center. Opportunity as it sits today. Is it clearly still a lot of spending going on here in North America? Maybe talk about sort of what you're seeing overseas And where does this really show up in your numbers? Is it on the commercial Obviously, on the infrastructure side or both? Just kind of give us a little color on the data center side.

Maybe all of the above, because data centers are a bit like, mini cities, you know, besides the building itself, there is an entire infrastructure around it. Yeah, for transportation, for electricity, for water. So this obviously can become [indiscernible] But indirectly as well because there's so much electricity which is needed in order to power those data centers. It can lead to extension of the transmission grid which we'll be benefiting from as well. Can even help, by the way, with our sequence software to help understand where aquifers are in order to be to tap into underground water to help with the cooling of data centers. So we can help all of the above. We can also help underground and we can help across the asset lifecycle. We have software for the design, also for the construction and then obviously for the operations of of, let's say, the system of systems, these mini cities that data centers represent.

But all of that, Blair, would not appear in commercial facilities. It would appear in industrial resources and public works and utilities among our sectors.

Great.

Thank you.

Thanks, Blair. That concludes our call today. We thank you for your interest in time in Bentley Systems.

Please reach out to Investor Relations with further questions and follow-up.

We look forward to updating you on our performance in coming quarters. Thanks a lot.

Thank you.

Thank you.