Good morning and thank you for joining Bentley Systems' Q1 2023 Operating Results. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Chief Executive Officer, Greg Bentley; Chief Operating Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of May 9th, 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 containing 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. Just a quick administrative matter before we begin. You can now find our 2022 annual report along with the CEO letter and our inaugural ESG report on our Investor Relations website. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.

Good morning and thank you all for being here. With the retirement of our Chief Investment Officer, David Hollister, and the redistribution of his responsibilities, our presentation format this quarter will be more streamlined. I’ll share insights on our business direction, corporate developments, and updates on capital allocation. Following that, our Chief Operating Officer, Nicholas Cumins, will give an in-depth look at our operations, including an overview of our business across sectors, commercial models, regions, and brands. The strong operating results for Q1 of 2023 reflect the expected resilience of Bentley Systems' end market, our predictable business model, and consistent execution without the challenges we faced last year in Russia and China. We either met or exceeded our financial performance metrics, particularly with operating margins assessed by adjusted operating income after accounting for stock-based compensation. Our operating cash flow outperformed expectations, and while Werner will address this further, we anticipate continued consistency here over a 12-month period. Nicholas will delve into the consistently positive operating trends we’ve observed. Although the year has commenced more positively in China compared to previous years, this may accelerate our strategic localization efforts, which may come at an incremental cost to our existing Annual Recurring Revenue (ARR). Overall, the robust performance in Q1 of 2023 reinforces our confidence in our annual financial outlook for this year. Regarding our key metric, ARR growth, this has expanded to a first-quarter high of 13% year-over-year in constant currency, with net revenue retention over the trailing 12 months remaining strong at 110%. This new business success aligns with external benchmarks, as indicated by the Dodge survey of US civil engineering firms, which has shown an ongoing increase in their backlogs. Broadening our view to the ACEC survey of US engineering firms, confidence remains high about future backlog increases over the next year. Sentiment among US engineering firms has improved this past quarter, particularly for engineering and design services and their firms' favorable outlooks. The latest ACEC survey reflects a positive sentiment within sectors related to BSY and highlights strong confidence for water and wastewater services while expressing satisfactory sentiment for industrial and commercial facility sectors, with vertical infrastructure lagging. The recent annual engineering news record survey ranks the top 500 US design firms, showing their design billings correlate with BSY's infrastructure sectors. Despite a changing landscape of firms in this list each year, the noticeable uptick in design billings is indicative of a growing emphasis on design-intensive infrastructure projects for resilience and energy security. ENR's rankings for non-US headquartered firms will be released later this summer, so we are currently working with 2022 rankings, which showed the top 637 firms reporting combined design billings of $216 billion. Many have inquired why we are focusing significantly on our new China-specific market strategy, given that China only accounts for a small portion of BSY revenues. The answer lies in the data, as the top 29 firms in China managed 27% of global design billings. This figure represents the current share among our key accounts and prospects in China and suggests that matching this share could potentially increase our overall revenue by nearly 25% at minimal additional cost. Currently, our ProjectWise enterprise collaboration system is well-integrated with top design firms to facilitate their engineering workflows, especially during the pandemic and in light of staffing challenges to address backlogs. Data from our analytics indicates that approximately 14% of full-time employees at these top firms utilize ProjectWise. This positions us as a leader in enterprise collaboration among these firms, presenting a clear opportunity for further standardization on ProjectWise as a priority for our product, sales, and success teams. These top design firms account for around a quarter of BSY's ARR. Regarding our revenue compared to design firms' billing rates for each design hour, our software costs represent a small fraction of their expenditure, highlighting our value proposition. As these firms deal with record backlogs but face staffing limitations, there’s considerable potential for us to offer more valuable software applications to meet their needs. Recently, we announced an investment in Worldsensing, a leader in integrated infrastructure IoT hardware connectivity solutions. In exchange for connectivity hardware acquired from sensemetrics in 2021 and a financial investment in Worldsensing's Series D capital round, we acquired a small equity stake. Crucially, our sensemetrics software will integrate with Worldsensing's sensors and hardware, with our freemium trial license included in all new installations. In terms of capital allocation, I will explain how I assess and optimize the leverage in our capital structure, which is influenced by convertible securities. This is important as it highlights BSY as a highly leveraged entity without recognizing the difference between convertibles and standard debt. Although accounting standards treat convertible securities as pure debt, I believe it’s more appropriate to view them through a financial lens that considers the mix of debt and equity. Our bank debt, used to finance the acquisition of Power Line Systems, stands at $340 million at the end of Q1 2023. The attractive convertible debt we issued, with low coupon rates to finance the acquisition of Seequent, also warrants consideration. Leveraging data such as delta statistics allows us to analyze these convertible issues more effectively in relation to the underlying stock's value. These statistics adapt based on stock price fluctuations and maturity timelines, revealing how we should treat these convertible issues within our debt equity mix. Our adjusted EBITDA for the last 12 months was $383 million, which indicates a net bank debt leverage ratio of 0.9 times, with an additional leverage of 1.9 times for the delta-adjusted portion of convertible debt, leading to a total effective debt leverage ratio of 2.8 times adjusted EBITDA. I welcome feedback on this approach to monitoring leverage that encompasses convertibles. Now, I'll turn it over to Nicholas for his insights on our operational performance in Q1 2023.

Thank you, Greg. We had a strong start to 2023 and we see momentum continuing into Q2 with healthy pipelines and many upgrade and expansion opportunities. The demand environment continues to be very positive and the pace of business is at risk. Incrementally, we see more evidence of funds from infrastructure investment programs flowing through to our accounts around the world, and this will continue to be a tailwind for the foreseeable future. Let me now provide some color commentary starting with infrastructure sectors. The trends in Q1 were consistent quarter-over-quarter. We saw very strong growth in resources, strong growth in public works and utilities, solid growth in the industrial sector, with commercial facilities somewhat flat. We continue to hear from some accounts concerns about interest rates and inflation. But in Q1, there were no surprises. Horizontal infrastructure remains very resilient. Turning to commercial models, our E365 and Virtuosity growth initiatives continued their upward inflection. In Q1, we upgraded to E365 almost twice the number of accounts than we did in Q1 of 2022. Bear in mind, however, that the accounts remaining to be upgraded tend to be those with low ARR to start with. Over the last three years, we have grown E365 primarily with global enterprise accounts, and we increasingly view the regional mid-market as a significant opportunity for E365. We were excited to upgrade to E365 a number of regional mid-market accounts in Q1, and we are on pace to hit our target for the year. As you know, E365 is a consumption-based commercial model and post-upgrade, our user success teams paid particular attention to the adoption of our software through success blueprints that are designed to achieve business outcomes through more efficient and effective use of digital delivery workflows. Q1 was a very strong quarter in terms of consumption growth by E365 accounts. In SMB, the tone of business was very positive, and we saw a continuation of our growth trajectory across the board. In fact, Virtuosity achieved its highest number of new logos in a single quarter. We see our SMB pipelines growing day in and day out, and the good news is that a lot of Virtuosity business is closing within 30 days. Next, looking across regions. India was a bright spot. The National Infrastructure Pipeline is funding large transportation and water projects. These projects are ecosystems of their own, and we have been very effective in driving adoption of our software by owner-operators and their value chain of project delivery firms, large and small. Global project delivery firms also continue to tap into India's engineering talent to support projects around the world and to help close their capacity gap. We also saw continued solid growth in Europe, with more evidence of EU funding flowing through, for example, in transportation and water projects in Italy. Growth was solid in the Americas too, with abundant project backlogs across multiple business lines, including projects from owner-operators extending to project delivery firms, primarily for design. And we saw more IIJA funding flowing through to DoTs, which is very positive news for us. As we have mentioned on previous calls, infrastructure engineering in North America is characterized by a very tight labor market with an aging workforce, and project delivery firms simply cannot attract talent fast enough. Interest rates and inflation are also making infrastructure projects more expensive and, as a result, owners are very focused on managing costs. Both of these factors, productivity and efficiency, align very well with our value propositions. The Middle East and North Africa showed some softness, but this was due to very specific account situations and one-time effects, and we do not believe these constitute a trend. In China, the impact of COVID is now in the rear-view mirror, and the Chinese government is very focused on bringing the economy back. We had a better start to the year, as revenue retention stabilized in the quarter, although we continue to be cautious for the remainder of the year due to the geopolitical and business environment. Last week, we officially formed East Wise, our joint venture with POWERCHINA HDEC. The focus is on engineering applications for the hydropower and water conservancy industries that leverage our platform but are developed and distributed domestically. As with our other joint venture TGGX and their product iLink, our net revenue proportion will decline for the accounts that transition to the new localized offerings. However, we expect that the depth of the market for autonomous Chinese solutions will eventually more than make up for this. In the meantime, especially because the joint ventures will cater to the preference of Chinese state-owned enterprises for perpetual licenses, the faster the JVs take off, the greater the erosion of our existing ARR in China. With respect to products, the performance of OpenRoads, OpenBridge, MicroStation, and AssetWise was notable in Q1. Of particular interest, in transportation in North America, we saw strong growth in Bentley Open applications, especially OpenRoads and OpenBridge, as well as MicroStation, a reflection of our strength in the DoT ecosystems. DoTs are resource constrained, but the usage of our software accelerated with the engineering services firms that are part of their ecosystem. This was a result of the training and over-the-shoulder mentoring our User Success teams have been giving to engineering services firms to put them in a better position to deliver in the DoT market. The instances of DoTs requiring models in deliverables showed extensive growth in Q1 and we do not see that slowing down in Q2. DoTs are looking to do more with less through going digital. Digital delivery tools and techniques can streamline processes across the infrastructure engineering lifecycle and enable seamless collaboration across DoT ecosystems. Digital twins created and updated throughout the digital delivery process can then be leveraged in asset operations and maintenance to take advantage of engineering data. In this context, we announced in Q1 a new collaboration with design and consulting firm WSB, aimed at leading civil infrastructure owners and contractors to adopt digital delivery and model-based digital workflows. WSB launched a new digital construction management solution and advisory service, based on Bentley's SYNCHRO, leveraging the power of construction digital twins. WSB joined the Bentley Digital Integrator Program, which provides programmatic go-to-market support and knowledge transfer to eligible project delivery firms that are creating and curating digital twins for their clients' infrastructure assets. Before I hand over, I want to thank all Bentley colleagues for a great start to the year, and for your commitment to consistent execution. More infrastructure is in the works now than at any previous time in history, and the infrastructure sector is relying on Bentley software to help it deliver a more sustainable and resilient future. And with those operational perspectives, I will now hand the call to Werner to go over our financials in more detail.

Thank you, Nicholas. We are pleased that we started the year strong, which puts us in a good position to achieve our established full year outlook. I'm starting with a reminder of our full year 2023 revenue outlook as was provided during our year end 2022 operating results call with a range of $1,205 million to $1,235 million, representing GAAP revenue growth of 9.5% to 12.5% or 10.5% to 13.5% on a constant currency basis. Total revenues for the first quarter were $314 million, up 14% year-over-year while 17% on a constant currency basis. For the quarter, subscription revenues grew 15% year-over-year or 18% in constant currency and represented 88% of our total revenues. The onboarding of Power Line Systems at the end of January 2022 accounts for about two percentage points of this improvement, and the continued upgrades of our enterprise accounts to our consumption-based E365 program is moving us towards a more ratable allocation of GAAP revenues between calendar quarters, which benefited the first quarter on a year-over-year comparative basis. Regarding our perpetual licenses, recent trends continue, which are reflective of our focus on recurring subscription revenues. Our professional services revenues benefited from the acquisition of Vetasi, which we acquired within our Cohesive Digital Integrator Group in 2022 Q4. With regards to foreign exchange rates, the U.S. dollar has weakened relative to the exchange rates assumed in our 2023 annual financial outlook. While the impact during 2023 Q1 was not significant, if end of April exchange rates would prevail for the remainder of the year, our full year GAAP revenues would be positively impacted by approximately $10 million relative to the revenues based on the exchange rates assumed in our full year 2023 outlook. Moving on to our recurring revenue performance. Our last 12 months recurring revenues increased by 14% year-over-year while by 20% on a constant currency basis. On a constant currency basis, the onboarding of our platform acquisition, Seequent and Power Line Systems contributed about six percentage points to this improvement. Our constant currency account retention rate was at 98%, and our constant currency recurring revenues net retention rate remained at 110%, led by continued accretion within our E365 consumption-based commercial model. We ended Q1 with annualized recurring revenues of $1,071 million at quarter end spot rates. Our constant currency ARR growth rate was 13% year-over-year and 3.1% on a sequential quarterly basis. You can see in the dotted line the ARR growth, which is attributable to the initial onboarding of our platform acquisitions. As the PLS acquisition occurred at the end of January 2022, its ARR onboarding is no longer a factor in the year-over-year comparison. Our strong and sustained Q1 revenue and ARR growth performance was supported by consistently strong market growth trends, led by our resources and public works utilities infrastructure sectors, our balanced business performance across regions other than China, and our E365 and Virtuosity growth initiatives. With regards to China, our first quarter was slightly better than in recent years, but we are still taking a cautious stance for 2023 due to the continued geopolitical uncertainties. And as Nicholas mentioned, our intentional pivot to license sales within that market, which will be a headwind to ARR growth as our joint ventures gain traction. Our GAAP operating income was $66 million for the first quarter, up $9 million or 16% over 2022 Q1. We have previously explained the impact on our GAAP operating results from amortization of purchased intangibles, deferred compensation plan liability revaluations, and acquisition expenses. Moving on to adjusted operating income, inclusive of stock-based compensation expense, which as discussed in our 2022 Q4 earnings call is now our primary profitability and margin performance measure. While adjusted operating income with stock-based compensation normalizes for the GAAP charges I just mentioned, this measure intentionally includes stock-based compensation expense which we believe appropriately captures the economic cost to our business. Adjusted operating income with stock-based compensation expense was $90 million for the first quarter, up $12 million or 15% over 2022 Q1 with a margin of 28.8%, up 40 basis points year-over-year. In 2023 and prospectively, we will now measure our long-term annual margin improvement commitment of 100 basis points expressed in terms of adjusted operating income with stock-based compensation with our margin target for 2023 of approximately 26%. In that regard, our Q1 margin of 28.8% was fully in line with our expectations for the first quarter, which is typically a higher margin quarter for us due to OpEx seasonality. And I do want to remind you of our seasonal pattern of expenses. We concentrate our annual raises for colleagues to occur as of April 1st of each year. And since approximately 80% of our cost structure is headcount and related to support costs, annual raises have a significant impact on our operating expenses in Q2, Q3, and Q4 relative to Q1. This is further compounded by our larger promotional and event-related costs, which are historically highest in the second half of the year. We expected our annual stock-based compensation expense will be decreasing as a percentage of revenues to a range of 6% from approximately 7% in 2022. There will continue to be some stock-based compensation expense volatility between quarters, corresponding to the timing of our ongoing annual round of broad-based equity grants, which are predominantly granted in the first and fourth calendar quarters. With respect to liquidity, our Q1 operating cash flow of $176 million increased by 73% year-over-year. As discussed during our 2022 Q4 operating results call that our 2022 Q4 cash flows from operations were atypically low due to a shift in timing of Q4 billings and therefore collections of certain E365 renewals and newly converted E365 contracts, all representing healthy new business. These 2022 Q4 timing shortfalls were fully offset in early 2023, resulting in 2023 Q1 being a strong cash flow quarter. As previously discussed, our business model produces reliable and efficient cash flows over a trailing 12-month period, but with some variability between quarters due to timing. For 2023, and prospectively, we estimate that our conversion rate of adjusted EBITDA to cash flow from operations will be approximately 80% over a trailing 12-month period. Along with providing sufficiently for our growth initiatives and our 2023 increase to a modest dividend, in 2023 Q1, we spent about $21 million on de facto share repurchases associated mainly with deferred compensation plan distributions to offset dilution from stock-based compensation. As of the end of Q1, our net senior debt leverage was 0.9 times and when including our 2026 and 2027 convertible notes as debt, our net debt leverage was 4.2 times. This is down from the end of 2022 which was 1.3 times and 4.7 times, respectively. As a reminder, now approximately 85% of our debt is protected from rising interest rates through either very low fixed coupon interest of our convertible notes or our $200 million interest rate swap expiring in 2030. With regards to our 2023 financial outlook, we started the year with strong operational execution and momentum in our end markets. This allows us to express great confidence in our 2023 outlook, which we believe is appropriately balanced between our business momentum and the cautious approach towards China and our commercial and facility sector due to geopolitical and macro uncertainties. And with that, I think we are ready for Q&A. Over to Eric to moderate. Thank you.

We'll now move to the Q&A portion of our call. We ask each analyst to please limit themselves to one question only so we can get to everybody today. Our first question will come from Kristen Owen from Oppenheimer.

Thank you. I wanted to ask first about Seequent because that just continues to be a business that outperforms our expectations. And as an outside observer, you might look at that business and think, well, mining, geothermal, these are capital-intensive businesses. So, why are they holding up so well? And if I could ask you to talk a little bit about what's sustaining growth in that segment and maybe where we are in terms of untapping some of the revenue synergies between the legacy customer bases there? Thank you.

I might start. The reasons are secular reasons, the world's priority on energy transition and electrification require the mining activities and that's got a long runway ahead, I believe. Much of our purpose in bringing the subsurface digital twin into our realm is the synergies with civil engineering projects and subsurface infrastructure conditions, and that's proceeding as well. It's just not nearly so visible in the numbers as is the momentum in mining. Nicholas, would you like to add?

Yes, Seequent is indeed experiencing strong growth and is a diversified business. The majority of this growth remains in the mining sector, where market conditions continue to be favorable. Despite some short-term price fluctuations, mining companies are basing their decisions on long-term price expectations, which are positive, leading to continued investments. However, Seequent is also expanding beyond mining. Their enthusiasm for joining Bentley was largely to speed up growth in civil engineering. Throughout most of 2022, our focus was primarily on integrating Seequent's back-office operations, but now we are concentrating on the front-office and business synergies, especially in civil engineering. All relevant Seequent products for civil engineering are now accessible to our E365 accounts, and we have observed a positive increase in interest for those products in Q1. While it's still early, the prospects appear very promising.

And finally, just a reminder that the consumption of the Seequent software in mining is more to do with the OpEx throughput of mines than the CapEx, necessarily, of Newmont.

Hey, guys. Good morning. Thanks for taking my question. And I appreciate the format this quarter. Greg, you spent some time talking about the importance of China, which I think we all appreciate. Maybe I missed it, but could you talk about some of the expected ARR headwinds this year? I don't know if you can quantify that. And then, perhaps, even more so, once the JVs are in place, what sort of tailwind do you think that could provide at some point in the future?

It’s difficult to predict the situation in China. Our other business segments are quite predictable and show consistent trends, making China the outlier. In terms of Annual Recurring Revenue (ARR), while our overall business is heavily dependent on ARR, China is increasingly not. There, the preference leans towards perpetual licenses, and SaaS software has limited presence. Additionally, we are shifting more towards indirect sales, all these factors contributing to a reduction in our ARR. Considering China's importance to our financial outlook this year, we have experienced a loss of over one percent of our total ARR from China in each of the past two years. This decline is partly due to growth in other regions and currency weaknesses in China, but primarily stems from obstacles related to state-owned enterprises and geopolitical issues. To focus on the long-term, we are adopting a localization strategy, which, while beneficial for other aspects of the business, is expected to lead to a further decline in ARR. The turnaround in terms of higher unit volume to offset this is uncertain, although we remain optimistic. Highlighting that China represents 27% of the engineering engagement from the largest identifiable firms serves to underline the potential; their engineers are significant users of our software, and if we can navigate the geopolitical challenges, we can reach them.

Thanks, Matt. Our next question will come from Joe Vruwink from Robert W. Baird.

Great. Hi, everyone. Yes, I think this might be the first quarter where you've explicitly commented on the connection between IIJA, DoTs being funded, and now your related product seeing a consumption benefit. So, I guess my question is, what is your expectation here in North America as just more projects are undertaken through 2023 and even, it should be the case, into 2024? And then, maybe not to lead you in any direction, but it seems like water and the electric utilities could maybe be the next big areas to see a step up, if road and bridge are seeing it right now.

Yes, I think especially the uptick we remain to not have seen yet in IIJA is in this other half of the money, besides the transportation money, and that really is making progress, but is not equivalently flowing, as is the case with the road, and bridge, and transit funding already. Nicholas, do you want to add to that?

We are indeed seeing the budget of the DoTs are growing quite a bit, and this is obviously related to IIJA. And this allows them to fully fund projects where software is being used. A good example is the Brent Spence Bridge between Kentucky and Ohio. So, this is where we're seeing now the first impact of IIJA. But we're just starting, right? It's a growing tailwind, and it's going to get stronger. We are seeing a more direct link when it comes to transportation, indeed, but exactly as you were saying, Joe, we just have to look at IIJA and where they're planning the funding. And we know that it will come, as well, when it comes to the water infrastructure and when it comes to the electric grid.

Thank you.

Just to add that they are permitting legislation in Congress now in the U.S., which would help to catalyze faster spending, especially for electric transmission and distribution, among many energy projects. But the ones that are really teed up that would make a big difference for us are in the transmission and distribution of electricity.

Thanks, Joe. Next question will come from Jason Celino from KeyBanc.

Great. Good morning gentlemen. Thanks for fitting me in. I think my one question, I think I'll just focus on commercial facilities. I guess, in the quarter, did you see any headwind there? And then, I guess, for the second half, do you embed maybe some extra conservatism to the ARR guide? Thanks.

Well, I think our word was flat, which, of course, could be worse and we hope it won't get worse. But, Nicholas, do you want to add on that?

We remain very cautious because we attribute the flat growth to the market conditions. And we assume it is related to the, let's say, general underutilization of vertical infrastructure and the high interest rate environment, which is not favorable for new projects. Now, remember that it's a very small percentage of our ARR. It's a one, single-digit, now, percentage of our ARR. But it was flat last quarter. We saw it flat again this quarter. We remain cautious.

Okay, great. Appreciate the color. Thank you.

Thanks, Jason. Our next question will come from Joshua Tilton from Wolfe.

Hey, guys. Can you hear me?

Yes.

Great. Thanks for taking my question. I wanted to go back to the IIJA dollars and the DoTs, maybe just how has the competitive landscape within the DoTs changed since the last time we had an infrastructure bill or some type of funding to this level? And do you feel like there are more hands maybe trying to grab at the pie this time around? And how do you ensure that maybe you can take a similar share of the funding, as you have done previously?

Well, I think our share of work done by DoTs, and in every five or six-year bill, more and more relatively of their work is done in their supply chain and the engineering firms as they source more and more of it. We think that's been to our general benefit, as we focus more on this. Something to be said, however, is that, in the current environment of constraints on engineering capacity and with the IIJA money in each state, there's pressure on the DoTs to be sure to spread that money around to include the smaller firms and disadvantaged firms. And in many cases, they have only done site civil engineering work with other competitive software. So, there's pressure on the DoTs to be sure to include those new smaller firms to get some of this IIJA work. We think that's ultimately good for us because those firms will want to take a look at Bentley software and how they can increase their DoT work with specialization on Bentley software as well. And we have programs to help them contractually be introduced to our software. But it's all hands on deck to meet this capacity constraint for the DoTs competitively.

Thanks.

Our next question will come from Matthew Broome from Mizuho Group.

Hi, everyone. Thanks for taking my question. Could you maybe just talk about your current M&A priorities and how you view the current landscape there?

Well, we still have white space to fill. And I think our acquisition of EasyPower earlier this year is a great example for some specialized electrical analysis that, if you like, is on the facility side of the meter, and plants, and major infrastructure installations. It had been something where the electrical modeling was often done in other software. It wasn't integrated, and now, it can all be done increasingly in Bentley software without semantic translations and so forth. It will improve the quality and speed. Its electrical modeling is never done in a plant or installation because the controls are constantly changing, even when the rest of the capital remains the same. So, that's just an example of an appropriate programmatic acquisition. The thing is, you can't, even though we say programmatic, it can't quite be expected and scheduled out. And as you know, we've had fewer and smaller programmatic acquisitions over the last year and a half now, for no particular reason. To start with, some of it I think had to do with valuation or business owners waiting for better valuation. But we have a reasonable pipeline and are approaching it no differently than ever. The results turn out to be a little episodic, but that's the nature of the beast in M&A, I think.

Thanks, Matthew. Next question comes from Andrew DeGasperi from Berenberg Capital Markets.

Thanks for taking my question. I guess if I were to look at the growth for the rest of the year, in terms of the consumption-based accounts versus Virtuosity, do you think we still will see the same typical pattern that we've seen? In other words, we see a seasonal slower Q2 with the ramp-up for the rest of the year. And then, do you think the balance between the two will change in any way?

Well, our experience with Virtuosity has been over the past couple of years, and it continues to grow each quarter. There is a bit of seasonality in Q4, but otherwise, I think we can expect continued growth. When it comes to consumption, historically, our revenues in ARR were not as reliant on consumption as they are now, especially since E365 has become our largest commercial program. We are learning more about this as we analyze it further. After Q4 of 2022, Q4 tends to have more holidays, which means fewer working days and less overall consumption. Q1 doesn't have that issue, and other quarters can vary based on the holiday schedule. We haven't focused on that yet, but taking into account the effects of the holiday calendar, which can impact a couple of percent, it's significant when considering a typical quarter with about 60 working days. Despite that, we believe everyone is as busy as possible, and our success teams are actively working to introduce new, specialized applications and digital workflows. I hope we can look back at this year and see ongoing improvement in application mix. The current spending of only $1.41 per hour on our applications among top firms showcases the potential for increased productivity through more specialized software, which we have available. We just need to introduce these solutions to our success teams.

Thanks Andrew. The next question comes from Jay Vleeschhouwer from Griffin Securities.

Thank you. Good morning. Nicholas, in your prepared remarks regarding pipeline, could you talk about how that's being manifested in terms of demand for multi-solution sales across the portfolio, and as well for the demand for your services and consulting support via Cohesive, for example, are you having to invest incrementally in your services and implementation capacity? Thank you.

We are strengthening the solution dimension in our go-to market. And by solution, we mean how different products and the combination of products and services helped solve specific issues of user's accounts in specific industries. So, as we do this, especially for our key growth industries, then, yes, all conversations are multi-product, are cutting across product and services. Now, the beauty of something like Enterprise 365 is once you're on that program, it goes very quickly from a conversation about solution that cuts across products to adopting and using those products because we removed all the friction in order to purchase the software, in order to access the services that are needed, in order to implement, configure, integrate the software that you need.

And I guess what I would add is in our applications, they can be added one at a time, one day at a time, one user at a time, and end up being multi-product on a project that way. But our enterprise solutions, ProjectWise and AssetWise, are typically procurement cycles involving RFPs, often involving Cohesive to help with integration and so forth. Both sales motions at once are important, the incremental evolutionary increase in depth of applications and adding new users of ProjectWise and AssetWise. And I sort of showed how ProjectWise is used extensively by the top firms, but not by all the top firms, and we have many more opportunities there, and implementation and digital integrator services are needed. And we want to be leading the way in helping ultimately to recruit new digital integrators among the engineering firms themselves to help the owner-operators. And we're learning to do it better through Cohesive, which is now part of Nicholas' remit this year as well.

Thanks, Jay. Our next question will come from Blair Abernethy from Rosenblatt Securities.

Thanks. Good morning. I just wanted to see if we could get a little more color on the Virtuosity side of things. It sounds like you had record logos, new logos out of this quarter. Where are you seeing these? What sort of verticals or geographic areas are you seeing strength? Are you seeing any weaknesses in any areas? Just a little more color on that would be helpful.

Nicholas?

Yes, we have more than 700 new logos through Virtuosity this quarter. It is our record quarter, and the momentum is very strong. It correlates with where we're growing as a company overall. It correlates nicely, actually, with, for example, the commentary I gave on the regions. You will see, let's say, a rate of similar growth when it comes to Virtuosity. One thing that is interesting is we're growing not only with accounts in isolation, we are also growing and winning accounts in the context of those very large projects. So, a good example is in India, for example, where our software is being used by large engineering firms, owners, operators, in charge of massive water projects that are funded by the National Infrastructure Pipeline. This is actually pulling a lot of smaller engineering firms in their ecosystem to use our software. So, we're getting smarter and smarter about how we play the dynamics of the full ecosystem in order to win not just the large organizations but the smaller ones that are part of that. And when we do that, we do it through Virtuosity.

And I'll add that in China, where we mentioned things having stabilized in the past quarter, Virtuosity practitioner subscriptions are doing well in China. Now, these, I think, are being acquired obviously not by the big state-owned enterprises, but by the ecosystem in China. So, we go where we can go in a very large market. And even though, overall, China is characterized by preferring perpetual licenses, by preferring large enterprise commercial programs, it's such a large market that we can even grow in Virtuosity there.

Hey, guys. Matt on for Kash here. Greg, India continues to perform very well. Can you just further characterize the strength you're seeing in the region from an end market and application perspective? Thanks.

Well, it tends to vary from quarter to quarter between Northern and Central and Southern Europe, but I'm going to ask Nicholas to comment on that, sitting in Europe, as he is doing. However, one thing I will remark upon is if you look in our 10-Q, you'll see very high year-over-year revenue growth in Europe, which doesn't correspond to our commentary on ARR. And that has to do with 606 GAAP vagaries that come and go. So, it's doing well, but there was an outsized revenue growth there that isn't nearly so fundamental. But can you break it down for us, Nicholas?

I will say, if we look at Q1, the main growth drivers where we saw the strongest growth were in transportation and with rail projects, in particular, and then in industrial with EPCs and automotive. That's for Q1, but in general, what we're seeing is a really positive impact of the EU infrastructure plans. The first one that came to force is the NextGeneration EU. And we estimate that about 20% of the funding has been released, and that goes straight to projects where our software is being used. In the preparatory remarks, I mentioned, for example, the water projects in Italy. There are rail projects as well in Italy where our software is being used, and they're funded by the EU. And then, there's a new plan that got fully adopted now called the Repower EU plan. It is about ensuring energy security, which is top of mind, as you can imagine, in Europe. It's also about accelerating energy transition. It was discussed a while back, but it was fully adopted in February. And we expect that to become a tailwind as well because it plays to our strengths.

Thanks, Matt. Our last question today will come from Michael Funk from Bank of America.

Hey, all. How are you doing?

Cheers, Mike.

Thank you for the question. Regarding the leverage, Greg, you mentioned earlier your calculation for net debt to EBITDA while adjusting for the convert. How does this influence your perspective on funding acquisitions and debt capacity?

Our focus is on reducing leverage, and Werner has indicated that we expect to de-lever by about 0.5 times in the first quarter. Since this quarter typically generates strong cash flow, we will continue to move in this direction. While de-levering isn’t a pressing issue—since we’re not significantly over-levered—it allows us to be ready for M&A opportunities if they arise. We must remain prepared, as larger programmatic opportunities may come up, including potential platform acquisitions. Though it’s not urgent to reduce leverage, it is a prudent strategy to prepare for M&A. Meanwhile, we are committed to increasing our dividend this year and will continue our efforts to repurchase equity and convertibles to balance our stock-based compensation, which is on track. I’m generally comfortable with our leverage situation because our interest rates are low or balanced through swaps covering about 85% of our current debt. It’s important to consider both possible outcomes regarding convertibles, whether they convert or not, and we are ready for either scenario. Given our cash flow, I believe we can manage this effectively.

And, Greg, previously, I think you mentioned private market valuations are relatively elevated. Are you seeing those come down at all as you evaluate targets?

I think somewhat. Yes. But, Nicholas, the portfolio development, the programmatic acquisitions now are within your remit. Do you have a sounding on the market for that?

No, I don't have anything special to say here.

Do you know, Michael, our iTwin Ventures? That's a startup market. Of course, we're all on the investment committee for that. And my goodness, the private valuations have certainly been affected in that early stage. In the mature firms that we're acquiring in our programmatic program, yes, I think there is some improvement in the balance of power to the purchaser. And I don't think valuations are quite an issue now. It's availability and fitness that is determining our programmatic acquisition pace.

Great. Thank you all for the time.

Thanks, Michael. That concludes our call today. We thank each of you for your interest and time in Bentley Systems and look forward to updating you on our progress in coming quarters.

Cheers.