Good morning and thank you for joining Bentley Systems Q4 2022 Operating Results and 2023 Outlook Webcast. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Chief Executive Officer, Greg Bentley; Chief Operating Officer, Nicholas Cumins; Chief Investment Officer, David Hollister; Chief Financial Officer, Werner Andre; and Chief Technology Officer, Keith Bentley. This webcast includes forward-looking statements made as of February 28, 2023, regarding the future results of operations and financial position, 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 are forward-looking statements. This webcast will be available for replay on Bentley Systems' Investor Relations website at investors.bentley.com. After our presentation, we will conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.

Thank you, Eric, and I hope all of you have had a chance or soon will have to meet our new and very experienced Investor Relations Officer. And thanks to each of you, as always, for your interest and attention. Today, I and COO, Nicholas Cumins; and CFO, Werner Andre, will review our resilient 2022 Q4 and full year operating results. As the infrastructure engineering software company aligned global priorities and momentum from our three incremental growth initiatives, E365, Virtuosity for SMB and iTwin investments, reinforced our confidence for, again, a strong operational and financial outlook for 2023. Today, we will also hear as I always enjoy from founder, Keith Bentley, who will be transitioning his Chief Technology Officer role at the end of this quarter and retiring later this year, and the investment community will hear for the last time from former CFO and current Chief Investment Officer, David Hollister, who will be retiring at the end of this quarter. As always, I will start with what's new in our tone of business. Our key operating results headline is year-over-year constant currency ARR growth consistent with our original and sustained financial outlook of 12.5% in business performance, which excludes ARR acquired with Power Line Systems. For the quarter and for the year, this reflects robust and sustained momentum everywhere else in the world, making up for having lost Russia and for compounded headwinds in China. There, in addition to geopolitical concerns, which are not abating as evidenced by more recent developments to ring the fourth quarter's major annual selling season, the pandemic first caused a shutdown of our offices and then widespread sickness after the reopening. And as well, the government's intended infrastructure spending seemed to have been delayed. For the year 2022, for instance, as reflected in our…

Thank you, Greg. I am pleased to report that we made a strong finish to 2022 and see momentum continuing into 2023 with healthy pipelines and a very brisk pace of business. Market conditions remain positive. Q4 was a very busy quarter with more evidence of IIJA investment and EU recovery funds flowing through more so than in prior quarters. And as Greg pointed out, accounts appear to be more concerned about their capacity to execute rather than the book of business. Talking about momentum, I would like to acknowledge the invaluable work of our new Chief Revenue Officer, Brock Ballard, who has been instrumental in the successful global rollout of our E365 program, and I'm delighted that he now brings his wealth of industry experience to operating council. Of course, I will be remiss if I didn't also pay tribute to his predecessor, Gus Bergsma, whose relentless focus on execution elevated the company's sales performance to a new level of precision. Looking at the regions, I will draw your attention to Europe and India. Europe was a bright spot with improving market conditions and a strong pipeline. The main growth drivers were public works and contractors in industrial sector, as well as an acceleration of E365 conversions and consumption. In India, momentum continued in both enterprise and SMB with public works and industrial driving year-on-year growth. Transportation continues to be a strong point for us with firms flowing and lots of project awards. India is also a focus for urban and rural drinking water programs, and we made the single largest sale of our water product line in India in the last 10 years. Southeast Asia continues to impress with the scale of its ambition and it can point to mega projects in transportation, in rail in particular. At…

Thank you, Nicholas. And may I add my thanks to the whole of your operating teams for these best ever operating results that we're reporting today and expecting for 2023. Following on from the Chief Revenue Officer transition that Nicholas just reviewed, the corporate developments we will cover now are also related to executive succession. Recall that the primary motivation for our IPO after 35 years was to help provide a prosperous retirement for our colleagues who had collectively earned one third of the company's ownership while making possible our success. As an expected consequence, we will, this year, substantially complete the retirement succession for cumulatively nearly half of our officers. I described this wave of management promotions as generational. This year's retiree cohorts has an average tenure of 26 years. A commitment we have engrained over all that time is that our operating management is annually charged with realizing scale efficiencies sufficient to expand our operating margins by about 1 percentage point. In our financial outlook for the year 2023, we are now aligning our external margin metric with what we believe most appropriately measures this aspect of operating performance and improving on adjusted EBITDA for these purposes. Based on feedback to date, I think investors will also prefer our compass setting metric going forward, which is adjusted operating income, including stock-based compensation as encompassing real and substantial economic costs that are conspicuously overlooked in adjusted EBITDA, and this includes capturing operating depreciation and amortization, which becomes more significant for us in 2023 as our digital experience investments include some IT expenditures that require capitalization. But most importantly, to us all as shareholders, stock-based compensation bears real cost of dilution. In our case, corresponding to the free cash flow we use to fund offsetting repurchases. As I described in…

Thank you, Greg. When we began Bentley Systems journey in 1984, I'm sure I wouldn't have been able to predict where we'd be at this point as a publicly traded company with $1 billion in annual revenue. It's been an incredibly rewarding and exciting journey for me as the years have just flown by. But of course, I've been at this for so long, and I've made so many multi-decade personal relationships with our wonderful user organizations. And I feel a real personal obligation to them. Likewise, I'm deeply committed to my colleagues here at Bentley, many of whom have dedicated their entire career to our company. So part of me wants to work forever. But last, as they say, time waits for no man. And inevitably, there must be a transition. Best if it can happen while I can help make it as smooth and successful as possible. So while I'm stepping down as CTO and I intend to start gradually ramping down my schedule throughout the course of this year, the Bentley Systems journey will continue unabated. To me, the future looks even more exciting and more full of potential than it did when we began with the advent of the personal computer nearly 40 years ago. Of course, I will also remain a director and investor in Bentley Systems left anyone think there's a danger that I may lose interest in our long-term success. I've been working with my successor as CTO, Julien Moutte, continuously over the past two years. And I've come to have a sincere trust in his in things and a real admiration for his drive to get things done. Together, we'll make the transition as smooth as possible, and we're both committed to continuity, both in terms of our long-term directions and our…

Thank you, Keith, for your vision, your leadership and your kind words. And indeed, I will talk about some new investments. Beyond our noted progress in developing formal joint ventures in China to forge an alternative means of doing business in that evolving landscape, I'd like to give updates on our iTwin Ventures activities and expand a bit more on two of our latest acquisitions, EasyPower and Vetasi. So as you know, we formed iTwin Ventures to stimulate entrepreneurialism in developing digital twin applications, including those leveraging our iTwin platform capabilities. In addition to our traditional venture portfolio investments, and I'll highlight a new addition to that in a moment, we sponsor and support a development ecosystem, wherein iTwin Activate is our accelerator program, where we engage with early-stage companies and fund approved development projects in exchange for equity, typically safe notes. We completed our first cohort of iTwin Activate focused on the grid and the success of this cohort has already led to certain products ripe for introduction. And joint marketing and co-selling motion between Bentley and the cohort participants are already underway. It's our expectation that many of these iTwin Activate program participants graduate into venture investable businesses for iTwin Ventures and others to invest in. Since we last spoke, we continue to be enthusiastic and supportive of our investment portfolio and are pleased to announce our recent investment in Oakland, California-based Flow Labs. The Flow Labs platform leverages aggregated real-time traffic sensor and connected car data to generate a synthetic data set approximating all road usage. This data supports a range of optimization and analytics use cases, starting with traffic signal optimization and extending to traffic flow monitoring and optimization at city scale. We also see the potential for Flow Labs real-time data sets to contribute to…

Thank you, David. And thank you for your leadership, the profound impact you have had on Bentley and the mentoring and guidance you have given me over the years. We are pleased that we finished the year strong, and we feel good about our outlook for 2023. I'll start with our Q4 revenue performance. Total revenues were $287 million, up 7% year-over-year or 13% on a constant currency basis. On a constant currency basis, Americas grew 9%, EMEA, 16% and APAC 17%. For the quarter, subscription revenues grew 13% year-over-year or 18% in constant currency and represented 88% of our total revenues. The growth is supported by our balanced business performance across sectors and regions other than China, our E365 and SMB growth initiatives and our platform acquisition of Power Line Systems in January 2022. Regarding our perpetual licenses and services revenues, recent trends continue, which are reflective of our focus on recurring subscription revenues. Now moving on to full year revenue, which were $1.1 billion, and up 14% year-over-year or 20% in constant currency, which is at the high end of our constant currency outlook range. On a constant currency basis, Americas grew 22%, EMEA 15%, and APAC 21%. China was a nine percentage points headwind to APAC's constant currency revenue growth. Subscription revenues grew 18% or 24% in constant currency, which included 12 percentage points from our Seequent and Power Line Systems acquisition and 12 percentage points from our business performance. I'm covering next our recurring revenue performance. Our constant currency account retention rate was at 98%, and our constant currency recurring revenue net retention rate remained at 110%, led by continued accretion within our E365 consumption-based commercial model. We ended 2022 with ARR of $1.037 billion at year-end spot rates, now for the first time above $1…

Great. We'll now move to the Q&A portion of our presentation. We ask that each analyst limit themselves to one question and one follow-up. First, we'll go to Joe Vruwink from Baird.

Hi. Great. Can you hear me?

Yes. Go ahead, Joe.

First off, congrats to Keith and David on what have really been great careers and nothing but the best for both of you. India maybe seems like a good analogy or anecdote. This is a market that is spending a lot on infrastructure post stimulus. And you seem to be specifically seeing strength in your associated products in India around transportation. I guess my question would be, can we extend this into the U.S. So have you started to see an acceleration in new business aligned with the sectors farthest along in the IIJA deployment? And if this is so, is your kind of expectation for the upcoming year that new business growth likely broadens out across the portfolio as the scope of IIJA broadens out across different subsectors?

Joe, I think that described it pretty well. I don't think it could be of the scope of increase of India. Remember, India was pretty much affected by the pandemic, but it's come back way above pre-pandemic levels in India. We did see, we are seeing the increase from the IIJA. We began to see that, of course, during the third quarter. The fourth quarter in North America was not so much yet a further increase, but we are expecting that during 2023, just as you said, because the IIJA spending broadens out to include the other beyond roads and bridges, expanded budgets in infrastructure at large. But I'll ask Nicholas if you'd like to add more.

Well, maybe a few words about India. First, it is the country where we see the most direct link between additional investment in infrastructure engineering software and the infrastructure plan. So it is the most advanced, and we can point to a number of projects where our software is being used and is directly funded by the National Infrastructure Pipeline, as it is called over there. India benefits from something else, which is there is a number of global accounts who are moving work to India, right, in order to solve for the capacity issue that they have in the rest of the world, they move work to India as a, let's say, workbench extension if you want. But the way they move work over there is not just be cost effective, it’s really to tap into additional capacity that they don't have. And in that case, they actually gave them full responsibility, including product management. So with respect to the U.S. We have, let's say, so consensual evidence that the usage pickup that we see in transportation, for example, is indeed related to IIJA, but we also know that it's going to take time for the funding to flow from the federal to the state level infrastructure owners contractors. So this is going to be a tailwind for multiple years.

Okay. That's great. And then just to spend a bit of time on the resources side of the portfolio, which I think, you called out Leapfrog was one of the areas of strength. And also, at one point in time, kind of the E365 customers that were energy exposed, your EPC customers, that was a pretty big dilutive factor on net retention and ARR growth. Just wondering, in 2023, do you kind of expect that pent-up CapEx comes back online and so you're able to gain back a lot of that loss if I can call it that ARR? And then what would kind of be your more specific outlook on resources and the Seequent side of the business?

Yes, let me start with the EPCs, the big global firms who primarily do engineer, procure, construct for industrial CapEx. Of course, their business went way down in the pandemic, and they have worked at diversifying now into renewables and energy transition, which was a great choice for them to focus on. And I don't think their growth rate is distinguishable from the green color of tone of business in industrial and resources generally now. But it's a good question, and I'm not sure whether they are back. I would guess they are not quite back to where they were pandemic, but that's not an informed, quantitative view at the moment. We had stopped separating them because they look like everyone else is being fully occupied at the moment, although their companies did shrink. And then on mining and resources, Nicholas, maybe with Seequent if you could comment on the pace of growth in mining and resources.

Yes. So, mining is still in a super cycle. The early stage drilling, which we look as an early indicator is up, and it's at its highest level since 2014. So, there is a lot of activity going on. I think there is a clear realization that a lot of mining is needed in order to support the world electrification. We see also a lot of activities with the large mining companies who are full of cash because they benefited from sustained price increase, they also benefited from the strength of the U.S. dollar, which is the currency that they use for their business. And we are seeing them acquiring a lot of smaller mining companies. So in fact, in 2022 – the first half of 2022, we saw 50% more M&A activity than in the previous year. So there is a lot of investment going on into mining. And of course, Seequent is extremely well positioned to benefit from that one. Yes.

Sorry, back to you, Nicholas.

I just want to say that when it comes to EPCs contractors and industrial, those were actually among the two growth drivers that we've seen in both Europe and India, in Q4. So we've definitely seen a regain of strength there. Now Seequent, when it comes to energy it's going to be used more for geothermal or even for wind – offshore wind platforms rather than oil and gas traditionally, right? So it's focused more on renewable sort of energy.

Thanks guys.

Thank you.

Next, we'll move to Matt Hedberg from RBC.

Great. Thanks for taking my questions guys. Nicholas, the European strength really stood out to me. Can you double click on maybe where you saw that strength? And just how sustainable you think that is into 2023?

Yes. We – I mean, I mentioned already in the prepared remarks, we saw as growth drivers public works and contractors in industrial sectors, so EPCs, as growth drivers. We also see a net acceleration of conversions to the E365 program, and consumption with E365; but there's something else that I didn't say in the prepared remarks that is going on in Europe, which is a very large infrastructure investment plans. The first one, which is really impacting us, it's called the next-generation EU plan. It started to be active in 2021. About almost 20% of the funding for that plan is already being distributed across the different countries. And we can point to a number of projects that are being funded by that plan where our software is being used, like multiple high-speed well products in Italy. We just had in Q4, a very large electric utilities that we've won as a – and we made a big deal because of a project that is funded by the next-generation EU plan. So there is more coming; only 20% has been distributed, there's more coming. There's another plan which is not yet in effect, but it's quite urgent because it is about reducing still our energy dependency with Russia. This is called the repower EU plan. It is still in legislative proposal state. It's not yet in force. When it would be enforced, it is well aligned with what we see as our strength from a software standpoint. So we should benefit from that as well. So that is all additional tailwind that is coming to sustain our growth in Europe.

Got it. And then Werner, for you on the guidance; is there any way to think about quantifying the inorganic contribution to ARR growth as well as maybe what you've included for China? I know you said things could deteriorate further, but just trying to get a sense for how derisked your guide is for China?

I jump in on China in particular. So we began 2022 with China at about 5% of our ARR. This year, we start the year, it's under 4%. And of course, we had some net attrition, but also everything else grew, if you see. And finally, the currency didn't do well during 2022. But – so that actually turned out to be a bigger headwind for us than was the loss of Russia and is the reason to be apprehensive. If China would be growing at the relatively favorable growth rate compared to the company as a whole that we experienced prior to the pandemic. Our outlook for 2023 would be at least 1% higher in ARR growth than it is. And Werner let me send to you the question on the programmatic acquisitions, which we include in our business performance because it's not worth breaking them out. Go ahead.

Agree on everything on China and programmatic acquisitions, we in over the cost, they contribute an average of 1% to 1.5% to annual recurring revenue and to our top line revenue as well. Although more recently on ARR, it was a little bit higher, but approximately between 1% and 1.5%.

Well, it was lower in 2022...

Great.

...because there were a few such acquisitions, but we are resolved to get back to our pace of programmatic acquisitions over time. There's no particular reason it was lower in 2022. It was just a matter of certain things.

Thanks guys. Congrats on the results.

Next, we'll move to Kristen Owen from Oppenheimer.

Great. Good morning. Thank you for taking the question. So I wanted to follow up on some of the commentary around the EasyPower acquisition. We talked quite a bit about the overlay of your portfolio with electrification and energy transition, but I was hoping you could speak specifically to the grid digital twin ecosystem who becomes the steward of those digital assets? And are there areas of the portfolio that you feel are maybe missing similar to this EasyPower acquisition, maybe in load management or something like that? And then I have a follow-up.

Thank you, Kristen. We do think there's a great opportunity in what we call integrated grid, which is putting together from a physical grid standpoint, the communications infrastructure, that's increasingly 5G and as well as towers and it's shared use with electrical transmission and distribution, and that's where a lot of our integrated grid efforts have focused on the physical side. EasyPower comes in on the modeling and analysis side. But as to a grid there's a portion, if you like that belongs to the utility. And then we say behind the meter is the portion that belongs to the major power user and EasyPower has focused to date, mainly, not entirely, but mainly behind the meter. But what goes on behind the meter is increasingly a mix of what we call distributed energy resources. So its facilities that are starting to have some solar starting even to have some wind and some battery storage. And therefore, for every industrial or commercial or mining facility, however, engineering is never done. It constantly needs to be modeled and updated through a digital twin. And that's where EasyPower comes in because it's much more approachable and accessible to make part of a digital twin. So it's an excellent acquisition for us. We will need ultimately to extend this to all aspects of the integrated grid, but we're going to focus on this distributed energy resource opportunity behind the meter, most immediately with EasyPower.

There we go. Thank you. Apologies for that. So my follow-up question is really a follow-up to the prior, which is you have EasyPower now that you've tucked in this year. Should we think about you returning to that historical point to 1.5 points of programmatic acquisitions contributing to ARR growth this year? And if you could speak to the valuation backdrop in your M&A pipeline, that would be helpful? Thank you.

Well, it went significantly below 1% during 2022. And so I think it'd be ambitious to get above 1%, I'm sure why deals of our, I mean, we're disciplined about valuation, of course but we'd be glad to get back to 1%, if you ask me.

Thank you so much.

Next question comes from Andrew DeGasperi from Berenberg.

Taking my questions; first, congratulations to Keith and David as well as Julien on the promotion. Maybe, Greg, could you elaborate a little bit on the digital twin impact getting embedded in terms of the software more broadly? Is there like a time line that you have in mind on whether that could happen? And then I have a follow-up. Thanks.

Well, we announced in November a Year in Infrastructure 2022, Bentley Infrastructure Cloud, which brings the iTwin Platform and the iTwin Schema to project-wise, Seequent and Asset Life. That leaves the two-thirds of our portfolio, the modeling and simulation applications for the focus that Keith talked about. And maybe I'll just say this that it's easier to stop for Keith to stop getting paid than it is to stop working, and he made a commitment to our users. But I think it's very significant. He said before the year is out in 2023 we'll have the modeling and simulation users also benefiting in their applications from becoming data centric from – in creating their deliverables that they do now. They'll also be creating an eye model that can be referenced in query for analytics, machine learning and so forth, right out there needing to change what they do. And I think his change in focus here has been sort of because he wants – he knows that our Chief Technology Officer role includes lots of other responsibilities, wants Julien to take all that up so he can focus on delivering on this promise to integrate the iTwin Platform so that our users are creating high models at the same time as their traditional deliverables. And this pipeline for that was the coming year, and I think it's a wonderful ingenious plan he has for that. And by the time the year is out, our modeling and simulation software will also include iModel generation for all of our users as they adopt their 2023 edition of our applications.

Thanks Greg. That's helpful. And then maybe, Werner, on the margin expansion, I just wanted to maybe touch base on that. If you could break out a little bit more in terms of what are the components that are going to get you to the 100 basis points? I mean how much of it is core relative to the stock-based comp leverage? Because if also I look at Q4, Q4 based on the release, it looks like the core margin has slightly gone down a little bit. But just wondering is that reversed essentially in 2023? And yes, if you could elaborate a little more. Thanks.

Maybe came to Q4. Q3 year-to-date was like a high level on margin base, and the goal was always to come in at the end of the year, approximately 33% adjusted EBITDA margin. So we knew that as we went into Q4 that we would more invest into the business and try to spend in areas that benefit the following year. And going into Q4, so we manage the margin on the power alignment model, where we consistently recalibrate the revenues with our head cost to our revenue run rate. And coming into Q4, we were pretty much like balanced with that measure and the incremental investments into next year. Going into 2023, we scale as the orders will be deplore revenue as indicated, and we reduce our costs a little bit relative to the revenue growth and manage it through the alignment model.

So of course, we don't reduce our cost. We reduced our rate of increase of our cost in relation to revenue. Maybe I'll just comment quickly that I'm always confident that we'll meet our operating margin goal because our operating incentives – our operating management has that as a condition for their incentives. Their incentives depend on our ARR growth rate, but our condition on improving operating margins modestly every year. The percentage point is not difficult. Well, it's difficult, there's a lot of work that goes into it, but we've become confident in and being able to do that. But as you see, we don't wish that to be based on adjusted EBITDA given its arbitrariness and excluding, for instance, operating depreciation and amortization, which is significant for us now and especially excluding stock-based compensation, which can jump around for arbitrary reasons like elections by executives and so forth. So Nicholas is delivering these improvements, and I'll give you the last word, Nicholas on the matter.

Yes. I will just confirm that we are committed to keep improving our margin.

Measured in the right way.

Exactly.

Thank you.

Great. The next question is going to come from Matthew Broome from Mizuho.

Hi. Thanks for taking y question. I'll just add my congratulations to Keith and David and best wishes to both for the future. So I guess, firstly, just how did demand trend during the quarter in terms of linearity? And I suppose, given that we're now sort of two months into the first quarter, is there anything you can say about how usage has been tracking year-to-date?

Well, I may start on linearity. We had this phenomenon of reduced collections during the quarter, which we sort of didn't plan on or anticipate, but we found our negotiations were taking us nearly to the end of the quarter because we and the accounts were negotiating considerable increases in consumption and new deposit levels. And in many cases, we have floors and caps to be negotiated and we had many conversions upgrades, I'd say, to E365 that occupied much of the quarter. But it's a great thing to be working on when you're working on going digital plans that require more software and software increases. So there was that aspect of linearity. I'll say one more thing and then turn it over to Nicholas, which is the fourth quarter is not a quarter where we have learned to expect volume – consumption volume in E365 to grow much compared to sequential quarters. And that's because of holiday. Can we literally charge for application per day, and there are fewer workdays in a fourth quarter each year. So more of the new business this year was of the nature that I described of renegotiated resets and new E365 upgrades when I described the application mix accretion, which never stopped, rather than outright consumption going to the degree, although Nicholas mentioned consumption increased in Europe, in particular Anything further Nicholas on that?

I will say that the general trend is that we are improving linearity. It is true that in Q4, we had many of these E365 conversions that happened, a little bit late in the quarter. But as we're converting accounts to E365 and as consumption growth then becomes an important portion of our AR growth that actually contributes to better linearity. Same with Virtuosity as we sell shootout quarter with Virtuosity, the more we sell with Virtuosity, the higher is the percentage of our AR coming from Virtuosity, then the better it's going to be our linearity. So the overall trend is improving.

That it's the enterprise negotiations that drag out to the end, the SMB and Virtuosity, practitioner sales and so forth are more reliant on steady.

Okay. All right. Thanks. And then just curious, how are you approaching hiring in the year ahead? To what extent are you still having sort of success finding sort of qualified civil engineers to build out your E365 program?

Nicholas?

Yes. So in hiring, we see clearly more applicants now to our job openings than we've seen before. But we haven't seen an acceleration of the hiring process still. So we still have a lot of candidates to come in with pretty high expectations when it comes to compensation that we need to then align with what we are able to afford. So we do hope and foresee actually that it will ease out during the year that it will get easier to hire. But right now, I cannot say that it is much easier. They're definitely more applicate. You could argue that even with more because it is actually slowing down a little bit our recruiting process, but the key message is the following, which is we are hiring, we are definitely hiring, and in order for us to continue to go in order for us to sustain our growth.

And most of the engineers we're hiring, of course Matthew are software engineers, and that's where the phenomenon Nicholas talked about. You did ask about siblings. So those are important for our success teams, but it isn't numerically the bulk of our hiring, if you see.

No, that makes sense. And then sorry, maybe I'll just squeeze in one last one. One of your competitors have been talking a lot about seeing a lot of demand in sort of smart water infrastructure. Just curious what you're seeing in that market, both in terms of fundamentals but also competition?

Nicholas?

Yes. Well, OpenFlows was actually a – which is our brand for our applications for the water infrastructure was a highlight in Q4. We did see notable growth in – around the world. We did sign our largest deal in India in the last 10 years, which was actually directly related to the major infrastructure plan in India, which had some provisions in order to upgrade the water infrastructure and make sure that tap water is available to everyone in the rural parts of India. So we are benefiting from more investments in water infrastructure that we're seeing in India, but we also see as more and more infrastructure owners – water infrastructure owners, who are looking into creating digital twins of their water infrastructure as the way to get more efficiency, more effectiveness in their processes. I'll just mention finally that using power, for instance is very important in greening water infrastructure and energy resilience and transition.

Next question from Kash Rangan from Goldman Sachs.

This is Matt on for Kash. Nice for taking my question. Greg, Bentley's performance down market has been very solid with Virtuosity, another quarter of 600 new logos. I think you made a comment last quarter that you're really surprised that there are so many logos to go after in any given quarter. Perhaps if you could characterize how you view the opportunity for SMB heading into 2023? And really just any change to the competitive landscape? Thank you.

I'm going to ask Nicholas because we just had the whole sales group together and the Virtuosity leadership and team are – when I say exponential growth, that's their plan for 2023 as well. They don't – they're not at diminishing returns in terms of competitive opportunity. A lot of our digital experience investment is self-service, e-commerce and automated renewals and so forth so that the same team can get even more done. But Nicholas, how would you summarize that?

Yes. Virtuosity is going to be a big growth priority for 2023 and beyond. We see still an important market for us to go after to convert accounts to Bentley Software. It can be the most, let's say, fundamental software we have like MicroStation, or more sophisticated solutions like the one I just talked about, which is OpenFlows. Now we also see an important growth opportunities with new logos in the enterprise space, especially when it comes to construction and in Heavy Civil. And we've had some interesting wins in Q4 to confirm this and of course with infrastructure owners, operators, right? So there is also a sizable growth opportunity for us to win new logos in the enterprise space, not just SMB?

All right. I think the last question we'll take today is from Jason Celino from KeyBanc.

Great. Sorry, there we go. Great. Thanks for fitting me in. Maybe on the ARR guidance, a lot of moving parts, but just for the benefit of everyone, I just want to clarify that PLS is not included in the 11.5% to 13% guide. Is that correct?

No, PLS is included. What was never included for PLS was the – was what we onboarded. But then after we onboard an acquisition, we move everything onto our paper and it's impossible to parse it out after that. I know, Werner, you were going to comment regarding ARR growth to help those who may be thinking about modeling that for 2023 because we provide only annual guidance. We're prepared to go back to 2022 and answer questions that you, Jason and others asked about the constant currency sequential ARR growth. Maybe you could cover that, Werner?

Yes. So from Q1 to Q4 in 2022, sequentially on constant currency basis like ARR grew 2% in Q1; 3.1% in Q2; 3.3% in Q3; and 3.3% in Q4. And that expense business performance that does not include the onboarding of Power Line Systems, as Greg has mentioned.

Okay. And then...

And as you think about how to seasonalize that if you would like to do it for 2023, recall that the numbers – business performance basis in Q1 of 2022 and Q2 of 2022 included Russia, and China impacts that we've already quantified that you might want to further adjust because those numbers are net of those impacts. But we have wanted to come back and answer the questions we got during the year last year to be organized about being able to do sequential constant currency ARR growth.

Okay. Perfect. We can take that off-line. And then really quickly, I know we're moving to the OI guidance with SBC, but if you'll – let me ask about EBITDA one last time. Would this have also translated into 100 basis points of EBITDA margin expansion or would have been more than 100 basis points given the decrease in SBC? Thanks.

Well, so for 2023, we – what we can say about SBC, it seems to me is it's going to gravitate in the range of 6% plus or minus. The reason that SBC can jump around is, as I mentioned, elections on our executive's part of whether to take cash or stock in their compensation. That depends in turn on whether they're going to get their equity distributions gross or net and who has to pay the taxes. And that in turn depends on our repurchase program and consideration of the stock price and so forth. So it's just – it's not nearly as visible how EBITDA – excuse me, SBC might go up or might go down. So which is why we're saying it's going to gravitate out, we think to be 6% or so for the long-term, but hard to say for 2023. And I wouldn't want our executives to be focused on or measured by something, which has that bit of arbitrariness in the SBC. Arbitrariness meaning elections that executives could make based on things that are not within the company's control. So I know that gets a little bit complicated, but we think normally, it will be the case that there will be an approximate correlation between adjusted EBITDA and adjusted operating income with SBC. But adjusted operating income with SBC is the one we can control, we think is economically and conceptually better and for everyone to converge around as many investors have asked us to focus on that in fact.

Perfect. I think that's it. Thanks, guys.

Great. Before concluding, we just wanted to announce that Bentley Systems will be ringing the opening bell at the NASDAQ on March 28. With that, we have now concluded today's presentation. Thank you for your interest and time in Bentley Systems.