Good morning and thank you for joining Bentley Systems' Q4 2023 Results and 2024 Outlook Webcast. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Chief Executive Officer, Greg Bentley; Chief Operating Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of February 27th, 2024, regarding the future results of operations and financial position business strategy and plans and objectives for future operations of Bentley Systems Inc. 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 on February 27th, 2024. After our presentation, we will conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.

Good morning and as always, thanks to each of you for your continued interest and investments in BSY. I will start by relating the directions reflected in our 2023 results to our consistent expectations for 2024 and then some developing aspects, which also have a bearing on our outlook. Nicholas will cover operational highlights of the quarter, including soundings of the current tone of business on every front, and Werner will review financial details for both years, all the way through cash generation and its planned allocation. Most significantly, I must emphasize our overall satisfaction with Q4 and the full year 2023. In keeping with this, Nicholas and his operating teams are to be enthusiastically congratulated for performance, which while surpassing our established annual hurdle of 100 basis points improvement in operating margin including stock-based compensation, earned 100% of their new business-based incentive pool. Although this entailed resourceful rebalancing after new mining investment unexpectedly slowed down in midyear, we have ended the year with historically high momentum in our fundamental ARR growth. A quarter ago a key question about ARR growth for 2023 Q4 was the degree to which accelerating progress in transitioning our China commercial model to be less directly subscription-oriented could perversely offset overall ARR growth. Otherwise, always our best performance gauge across the remaining 97% of our world. Indeed China, which previously was an ARR growth contributor, has been the significant detractor from our ARR growth as shown here ever since sanctions on Russia coincided with geopolitical apprehension about American software subscriptions for Chinese state-owned infrastructure enterprises. In 2023 Q4, our purposeful structural changes in China did seem to be making progress. When Chinese developed products of our first joint venture cannibalized project-wise installations, we lose ARR in exchange for approximately equivalent one-time net proceeds of the license sale for our underlying platform. But with no American stigma, hopefully, volume expands so that we can come out ahead. In fact, we concluded 2023 by growing our revenues in China for the year by 3% as such licenses more than offset the inevitable decline 7% in China ARR. To quantify the increasing impact on ARR of this intentional China market change, our overall ARR year-over-year growth rate of 12.5% is increasingly diverging from our high of 13.5% in the quarter for the world excluding China. And given the acceleration in our business benefiting the ARR detracting transitions in China, the baseline ARR growth rate for our 2024 outlook must reflect this gap prevailing foreseeable. To further consider how the other directions within our growth momentum exiting 2023 should inform our 2024 financial outlook, let's review in turn each of the underlying factors that we portray notionally in our introductory materials as layers within ARR growth. Starting at the top with new business from new logos, in 2023 Q4 for the fifth straight quarter this accounted for about 3% in ARR growth, led by our SMB initiative and ongoing digital experience investments towards self-service automation. Reinforcing confidence in continued such momentum in 2023 Q4 Virtuoso subscriptions attracted over 700 further new logos for the eighth straight quarter of over 600, in addition to over 400 separate new logo SMB accounts where in 2023 Q4 we achieved what I suspect was a competitive displacement through a perpetual license sale. The other layers of growth are those which aggregate to our net revenue retention for existing accounts. Because NRR takes into account only recurring revenue and not license sales, the mix change in China from subscriptions to licenses, is increasingly impinging on this measure. So while NRR declined in 2023 Q4 to 109%, excluding China and Russia, which is also a factor now, as this looks back over the full trailing two years, NRR would have remained at 110%. Our most significant initiative to sustain NRR accretion is our E365 consumption subscription program for enterprise accounts. You see here in green the incremental magnitude and proportion of ARR reached through E365 accretion and expansion in 2023 Q4. Although, it being a fourth quarter with its greater concentration of E365 prospect renewals, we upgrade relatively more ARR to 365 than in other quarters. In 2023 Q4, it remained the case that a relatively small portion of E365 growth was from our next largest accounts upgrading to the program with the majority of E365 growth representing NRR within accounts already on E365. E365 renewal negotiations for the largest accounts, now almost always entail resetting the individualized floors and ceilings, which serve to bound what we can charge for the accounts consumption. Increasingly, we and they have preferred to allocate our respective risks of consumption upside and downside proactively progressing over multiple future contract years rather than to renegotiate every year. Our own priority is to maintain floor and ceiling parameters, which in each case enable and incentivize double-digit ARR growth when effectively combining consumption volume, mix and annual pricing escalation. During 2023 Q4, one negotiation resulted for our first time in a total contract value in nine figures USD. Such multiyear E365 arrangement, reinforces our accounts' commitment to BSI and to going digital for mutual long-term growth. However, the contract length has no bearing on E365's straightforward ratable revenue accounting and annually recurring cash flow. And while much of our non-E365 subscription revenue is subject to 606 vagaries across the quarters of a contract year, we have almost none of the multiyear bookings and/or billings, which caused confounding obscurity for many other peer companies. By contrast over and above the compelling transparency of E365 ratable consumption accounting, multiyear floors and ceilings work out to everyone's advantage including investors, because they preserve our incentives and upside while improving and extending the visibility of our ARR, revenue and cash conversion. Back to the outlook for each accretion layer. Our annual price escalation, which can vary by country and product mindful of competitive conditions is on average more or less calibrated to stay ahead of inflation in our own costs, which are primarily for colleague compensation. For each of 2022 and 2023, we realized on weighted average escalation in mid-single digits. For 2024, it must be acknowledged that peak inflation in the world seems behind us, so escalation will contribute less ARR growth going forward. As to consumption volume, we faced another putative headwind with the demographics of retirement tending to reduce the infrastructure engineering workforce. And in theory, increasing productivity through going digital can even be at the expense of usage volume. The only offsetting gains in application usage volume could come from competitive displacement opportunities on the margin. On balance, we cannot now expect nor rely upon net increases in user volume. However, the widening engineering resource capacity gap between a static number at best of infrastructure engineering professionals and the burgeoning demand for world resilience and adaptation is in fact the greatest and most durable driver of our ARR growth, because going digital is the compelling key. Recall that the 2023 year in infrastructure going digital award finalist documented an average of 18% savings in engineering time through the digital advances we enabled for them. Quite noticeably, our enterprise accounts are now explicitly prioritizing E365 blueprint, which most deliver savings in man hours and usage days to our ultimate mutual benefit. And accordingly, application mix accretion, which measures the pace of our users upgrading to our more specialized and relatively more costly applications to increase their productivity continues to more than offset demographically constrained usage volume. And accelerating application mix accretion, which is our average revenue per application usage day holding pricing constant for the calculation. Our user success functions especially, by way of E365 digital workflow blueprints are literally leading the way. So, I'm pleased to report accelerating annual progress, with annual application mix accretion having grown from about 4.5% for 2022 to about 6% for 2023. This also captures the usage of ProjectWise attached to these application user days. So, this measure closely corresponds to what we've shown that the ENR top engineering firms, a representative quarter of our business, spend with us. Since that spending only averages about 1% of the amount that they build to their clients for the usage time, I believe there's lots of headroom for application mix accretion to continue to expand indefinitely. And looking to what's new, although we're confident in this long runway ahead for our strong and consistent consumption per user base business, I believe that here in 2024, we're finally at the point where our third aspiring growth initiative after E365 for the enterprise market and virtuosity for SMBs have become firmly established, will finally take off after having been promised in our intro deck as you see here for years. This third growth initiative leverages Digital Twin opportunities to be incrementally monetized through cloud subscriptions charged per asset. While I think that by rights, this can grow to become larger than the provision of software per user, the challenge has been that scaling Digital Twins takes a surrounding ecosystem of digital integrators to provide the related services around data quality and engineering proficiencies, which complete the use cases. To that end, we along with others have been determinedly evangelizing the infrastructure Digital Twin potential, spanning delivery and performance to thus both the infrastructure project delivery supply chain and of course to owner operators directly. Frankly, institutionalized conservatism has made this a slow sales cycle, with success by the ones and primarily in Asia Pacific. To gain experience in the meantime, we have assembled our own cohesive digital integrator to show the way. It's now nearly $100 million services business is opportunistically anchored by being the leading global implementer and emerging cloud hosting provider of IBM's Maximo, the primary incumbent choice of infrastructure owner operators for enterprise asset management. Thus, over time, cohesive can open doors for our iTwin platform to integrate engineering technology ET and operational technology OT with Maximo's IT for Digital Twins to optimize operations and maintenance. This represents the extreme of an enterprise approach to Digital Twins from the top down. But because that takes so long, we are trying also to widely catalyze Digital Twin opportunities from the bottom up. Hence, our priority to infuse and connect all of our existing offerings with our iTwin platform, starting with our Bentley Infrastructure cloud, ProjectWise and SYNCHRO for delivery and AssetWise for performance, and this year with natively hybrid capabilities in our modeling and simulation applications. However, even this is, at best, an evolution toward Digital Twin workflows. So, I am very pleased to say that we have now validated a breakthrough bottoms-up entry point for Digital Twin monetization that is, by contrast, instant on both technically and commercially. Accordingly, our main departure for 2024 will be a focus on this asset analytics opportunity. It leverages AI with our iTwin platform to generate discrete and actionable insights from enlivened reality modeling of infrastructure assets with the Digital Twin OT uniquely enhanced by ET and IT. Our learning curve in asset analytics was initiated with OpenTower, which we developed around a small acquisition of cell tower specific AI for our structural modeling and iTwin platform. Since I showed this with operating results almost two years ago, the AI value to communications operators for CapEx provisioning and OpEx inspection and maintenance has grown exponentially. What is new are the global household names in the broadband infrastructure ecosystem looking to join forces to institutionalize cell tower Digital Twins. Our other foray to-date in asset analytics Blyncsy, acquired and described late last year where the monetized asset is a mile of roadway and what we charge depends on how frequently the AI is run on fresh crowdsourced imagery to detect actionable maintenance conditions. Because its crowdsourcing is ubiquitous, Blyncsy asset analytics can be literally instant on in a blink. In each asset analytics case, our role can be behind the scenes providing the iTwin experience cloud services, our AI-as-a-Service, and all of the automated processing at scale and at standard volume-based pricing. Ecosystem partners can variously bundle and provide the survey imagery, their own proprietary asset-specific engineering analytics, and enterprise integration with the owner-operators environment. The financial opportunity is here and now. Our ARR for Asset Analytics Cloud service is in three digits per cell tower. In 2023, Q4 OpenTower won procurements including for new business ARR in seven digits. And in 2024, we are competing for eight-digit subscriptions. And with our go-to-market coverage of transportation owner operators, Blyncsy is now also pursuing procurements that can exceed seven figures of ARR. In each of the cell tower and roadway verticals, it is thus already clear that there is an asset analytics TAM in nine figures. And on our existing global footprint gives us the pole position with both the owner-operators and the required ecosystem partners. So, for 2024 our investment focus will be to organizationally consolidate OpenTower and Blyncsy with further potential such acquisitions for growth and operational synergies and to leverage and expand our asset analytics head start. This will have a higher priority than continuing either our iTwin venture program or fractional investments or even our traditional programmatic acquisitions of known mature companies to fill white space in modeling or simulation. As there don't tend to be potential asset analytics acquisitions beyond early-stage companies, the capital requirement should fit well within what would have otherwise been the magnitude of our historical programmatic acquisitions. And while OpenTower and Blyncsy themselves merit rapid investment to add capacity within their ripening markets, this is already sufficiently accommodated in our 2024 outlook for operating margin, including stock-based compensation, which continues our consistent annual improvement target of 100 basis points. Moreover, to the extent, we succeed in making further acquisitions in asset analytics and thus presumably end up actually for accounting, consolidating early-stage losses, which would have been below the line had we been merely DC investing to fund them, we will commit to corresponding increases in our ARR growth rate, so that BSY's literal Rule of 40, if you do the math for 2024 is not significantly in jeopardy this year. So while I have been generally emphasizing, maintaining into our 2024 outlook, our favorable overall operational and market consistency and momentum from 2023, this significant change to our acquisition priorities will make a difference. As you see here, the contribution to our business performance of ARR acquired with programmatic acquisitions had already been declining to a new low in '23 Q4. But since in 2024, we will be targeting Asset Analytics acquisitions, which will necessarily be in early stages, this layer will probably end up more ARR right than ever before. This is reflected in our 2024 outlook for ARR growth business performance, which is in the range of 10.5% to 13%. Nominally, that appears below what was our outlook for 2023 a year ago and at the midrange below our 2023 actual outcome. But in fact, we plan for quite consistent underlying robust ARR growth, especially ex-China, but subject as measured though to these effects of the accelerating China subscription transition of somewhat moderated escalation and have lowered expectations for ARR from programmatic acquisitions. Finally, the wider range than 2023 reflects the greater variability in the emerging Asset Analytics business model. To summarize, we are responding to very healthy end markets with appropriate and by now proven initiatives to sustain 2023's performance with incremental upside now including Asset Analytics. In any case, I think you can take away confidence in our principal demonstrated investment premise, consistently delivering profitability after stock-based compensation, which has grown at a compounded rate remaining on the order of 16% per year since 2018, with distinctively transparent cash conversion. And now, over to Nicholas, for operational perspectives behind these directions and development. Thank you.

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

Thank you, Nicolas. We are pleased with another strong quarter to finish out a great year. Total revenues for the fourth quarter were $311 million, up 8% year-over-year, or 7% in constant currency. Our fourth quarter revenues were impacted by timing from the continued upgrades of our accounts from traditional annual subscriptions with upfront revenue recognition to our E365 commercial model, where revenues are recognized on a more radial basis. Such E365 upgrades and the associated timing impact on revenue recognition were slightly higher than what we modeled. Otherwise, the quarter was in line with our expectations. For the full year, total revenues were $1.228 billion and grew 12% on a reported and constant currency basis. Subscription revenues for the quarter grew 8% year-over-year, or 7% in constant currency, and represented 88% of our total revenues. As just mentioned, subscription revenues were impacted by the timing aspects from our continued E365 upgrades. E365 now reflects 38% of our 2023 subscription revenues, up from 32% in 2022. For the year, subscription revenues grew 13% on a reported and constant currency basis. Our E365 and SMB initiatives continue to be solid contributors to our subscription revenues growth. Perpetual license revenues for the fourth quarter grew 6% year-over-year in reported and constant currency. For the full year, perpetual licenses revenues grew 6% in reported and 7% in constant currency. Even though, perpetual license makes up only 4% of total revenues and will certainly remain small relative to our recurring revenues, they have grown in significance to us and we expect the relative importance to our commercial offerings to continue, particularly for SMB and in China due to local preferences. Our professional services revenues for the quarter grew 9% year-over-year in reported and 7% in constant currency. For the year, services revenues grew 7% on a reported and constant currency basis, and benefited from the acquisition of Vetasi, which we acquired within our Cohesive Digital Integrator Group in 2022 Q4. Now before moving to our recurring revenue performance, I want to highlight our change in methodology for calculating constant currency growth rates. Starting this quarter, we transitioned to the transactional methodology from the previous functional methodology in reporting constant currency growth rates. The transactional methodology aligns with how we manage our business and how we have historically provided guidance. For us historically, both approaches typically delivered similar results. However, the increased significance of Seequent's US dollar-based international billings out of Bentley Island combined with increased FX volatility period-over-period, created bigger differences between the two methodologies. We provided our constant currency results under both methodologies in our Q4 results release and you will see further comparisons and reconciliations within the MD&A of our 2023 Form 10-K filing. On a prospective basis, starting with Q1 2024, we will report constant currency results on a transactional basis only. Our GAAP results as reported are of course, not impacted by this change. Moving on to our recurring revenue performance. Our last 12 months recurring revenues increased by 12% year-over-year in reported and constant currency, and represent 89% of our total revenues. Our last 12 months constant currency account retention rate is back at 98% and our constant currency recurring revenues net retention rate was 109% led by continued accretion within our E365 consumption-based commercial model. All of our recurring revenue measures are on a trailing 12 months basis with 2022 as the comparative period. As a result, they are all impacted by our exit from Russia mid-2022, when Russia represented approximately 1% of our subscription revenues run rate. We ended Q4 with ARR of $1.175 billion at quarter end spot rates with our E365 and SMB growth initiatives remaining the key growth drivers. On a constant currency basis, our trailing 12 months ARR growth rate was 12.5% year-over-year and 3.2% on a sequential quarterly basis. Q4 continued to be impacted by headwinds in China and a greater preference there for perpetual licenses. Overall, as Q4 is our biggest contract renewal quarter and thereby represents the quarter with our biggest ARR growth opportunity, we are pleased with the finish of the year. Now moving to profitability performance. Our GAAP operating income was $38 million for the fourth quarter and $231 million for the year. We have previously explained the impact on our GAAP operating results from amortization of purchased intangibles, deferred compensation plan liability revaluations and acquisition expenses. There are two other items, I would like to highlight this quarter. During the fourth quarter, we initiated a strategic realignment program, our first since 2020, to better align our resources with our strategy, address market opportunities and to support our growth. We incurred a realignment charge of $12 million, mainly for severance, which we expect to be fully accounted for in our operating cash flows during the first half of 2024. We expect to fully reinvest run rate savings into priority areas such as AI in product development and marketing. Secondly, during the fourth quarter, we recognized a net discrete income tax benefit of $171 million, relating to an internal legal entity restructuring and continued alignment of our Seequent's IP ownership with our operating model. The associated deferred tax assets represent the anticipated undiscounted future cash tax benefits, which we expect to realize through tax amortization over the next 13 years. Moving on to adjusted operating income with stock-based compensation expense, our primary profitability and margin performance measure. Adjusted operating income with stock-based compensation expense was $75 million for the quarter, up $11 million or 16% year-over-year, with a margin of 24%, up 150 basis points. In line with our plan and as discussed on our last call, our Q4 margin was impacted by relatively higher OpEx compared to Q3, mainly caused by incremental promotional activities and IT system implementation costs associated with our new financial systems. For the full year, our adjusted operating income with stock-based compensation expense was $325 million, up $51 million or 19% with a margin of 26.4% also up 150 basis points year-over-year. With respect to liquidity, our operating cash flow was $87 million for the quarter and $417 million for the year, up $143 million or 52%. Our conversion from adjusted EBITDA was 100% for the full year and benefited from timing of collections at the beginning and at the end of the year, and our increased focus on working capital management. 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 2024, we estimate that our conversion rate of adjusted EBITDA to cash flow from operations will be approximately 80%. Based on the expected seasonality of collections and expenditures, we expect that approximately 55% to 60% of our catalog from operations will be generated during the first half of 2024. For 2024, our cash flow expectations include a number of puts and takes, including approximately $12 million of severance payments relating to a strategic realignment program, around $15 million to $20 million of cash expenditures associated with our IT systems upgrades which we expect to be amortized into OpEx, starting in 2025 and incremental estimated cash taxes of approximately $8 million which does reflect the cash tax benefits from the legal entity restructuring I mentioned before. These increases are partly offset by a reduction in cash interest, net of the benefits from our $200 million interest rate swap. This is achieved by us having already fully paid down our revolving line of credit, our only expensive debt by the end of January 2024. With regards to capital allocation, in 2023, along with providing sufficiently for our growth initiatives, we deployed $259 million paying down bank debt, $59 million on dividends, $59 million on effective share repurchases to offset dilution from stock-based compensation and $38 million on acquisitions and investments. As of the end of Q4, our net senior debt leverage was 0.5 times and including our 2026 and 2027 convertible notes full year stat our net debt leverage was 3.5 times. We continued our strong deleveraging trajectory, delevering 1.2 times adjusted EBITDA since the beginning of 2023. With our strong free cash flow generation profile, we expect to organically delever and to increase our balance sheet strength while maintaining our programmatic M&A readiness, our dividend and share repurchases. From a rate exposure perspective, now that we have fully repaid our revolving line of credit substantially all of our debt is protected from high or rising interest rates. To read very low fixed coupon interest on our convertible notes, or our $200 million interest rate swap expiring in 2030. We remain very comfortable with our capital structure, our leverage, our maturity profile and interest rate exposure. And we'll continue to evaluate ways to optimize as conditions change. Moving to our 2024 outlook, which reflects our confidence in continued favorable market conditions and in the momentum of our growth initiatives, it also assumes a slightly larger than normal range of possible ARR outcomes to account for a commercial model shift in China from ARR, lower acquisition expectations, reduced escalations now that peak inflation is behind us and the incremental upside from asset analytics as Greg discussed. Our outlook also reflects our continued margin improvement commitment of approximately 100 basis points. Accordingly, we expect total GAAP revenues, based on current exchange rates in the range of $1.350 billion to $1.375 billion with constant currency growth between 10% and 12%. This is reflective of our mix with services revenues expected to grow above half of company average and license revenues growing more slowly. We are projecting constant currency ARR growth, between 10.5% and 13%. We expect an adjusted operating income with stock-based compensation margin, reflecting approximately 100 basis points annual margin improvement. Any FX impact on our margin is expected to be significantly mitigated by our natural hedge. We expect our effective tax rate to be approximately 20%. We expect cash flow from operations to convert from our adjusted EBITDA, at a rate of approximately 80%. We expect capital expenditures of approximately $22 million. To help you with your models I also included here on this slide additional expectations on interest expense and cash interest cash taxes, stock-based compensation, operating depreciation and amortization, outstanding shares and our dividend, which we have raised by $0.04 for 2024. And with that, I think we are ready for Q&A. Over to Eric to moderate. Thank you.

Thanks, Werner. In order for everyone to ask a question today we ask that you limit yourselves just one. Our first question is from Matt Hedberg from RBC.

Great. Thanks guys. Thanks for taking my question. So, I guess I had a question from IIJA funding a lot of good content in the prepared remarks. And I think you noted 35% of the $1.2 trillion of funding has been announced. I guess, beyond transportation and now water and electric grid, how should we think about the release of those dollars to additional verticals? And how should we think about just kind of the potential tailwind that could be for you guys over the next several years?

Nicholas, could you fill that please?

Yeah, absolutely. So 35% of the product funding has been announced. And mind you there is a bit of a time gap between when it's announced and when it's awarded, which can range quite a lot from one project to the other. In general, it does take time to percolate down from the federal agencies to the state authorities and our own operators to the contractors. Most of it as for transportation as you noted and we explained in the prepared remarks, we see it coming now for water, we see it coming from electric grid. The biggest issue we see for electric grid unfortunately is the permitting process in the US, because it can take many, many years for a project to get started once you have all the approvals, all the permitting done. So this stage remains the main limiting factor right now in order to have investments in the electric grid as an even stronger tailwind. Most of the activities we've seen for electric grid, actually all of them are about resilience of the existing transmission lines, analysis of their current state but it's not yet about expansion. When it comes to expansion this is when you need permitting this will be a significant additional growth opportunity.

Thanks Matt.

Hi, good morning. Thank you for taking the question. I wanted to ask about your AI priorities, especially in light of the changes in capital allocation this year. Can you help us identify what you believe Bentley needs to handle internally, what should be partnered on, and what might be acquired, along with the priorities you've outlined? Additionally, could you remind us how the unit economics of the successful cell tower business over the past three years relate to an ongoing AI business model? Thank you.

Greg, we cannot hear you.

Yeah, Greg. You're on mute.

I'm sorry. I realize I'm also invisible, which we're working on here. But Nicholas maybe you can speak to the first part of the question and then I'll talk about capital allocation, and asset analytics.

We see two main use cases for AI in the infrastructure sector. The first is asset analytics, where we use AI to assess the physical condition of an infrastructure asset in its context. This allows us to identify any corrosion, cracks, or vegetation and trigger engineering workflows accordingly. We can also initiate commercial workflows to determine the full utilization of a cell tower and assess if there is capacity for additional equipment. This first use case is quite advanced. The second promising use case involves using AI in design, acting as a copilot for engineers to enhance productivity. The gap in engineering resources is increasing as we are not producing enough engineers to meet demand, so it's crucial to make existing engineers more efficient. Our investments focus on using AI to automate site layout proposals and production processes, though we are still in early stages. We are collaborating with various representative users and find the potential significant. Both use cases present a clear platform opportunity centered around the digital twin platform. Through AI analytics, we create a digital twin of infrastructure assets. As we enhance infrastructure design, we also utilize digital twin technology. With our iTwin platform, particularly through investments with iTwin Ventures, we have observed redundancy among companies in asset analytics that repeatedly develop similar capabilities. This indicates a strong platform opportunity for us utilizing digital twin technology in asset analytics.

Well, I'll only add that Kristen and I realize it's been three years since I talked about the cell tower opportunity as a forerunner, for what should become digital twins in every infrastructure asset type. And the AI has gotten better and better and the value has gotten more and more over that period of time, but the business has had the fits and starts of the tower cos wanting digital twins, but their own ecosystem of providers in their own internal enterprise systems not being ready. So that has come and gone to where what's going on now however is it's in prime time with the household main providers of broadband infrastructure on board with this potential as they remake 5G networks. And our role is behind the scenes provider of the AI and the AI processing and reality modeling and we're generating three digits per tower and participating in procurements that will help institutionalize finding. So you will have taken – rest of this year on top for three years, but he's forerunners to become – to establish the potential of Asset Analytics on very much the believer that we're at this starting point now.

Thanks, Kristen. Our next question comes from Clarke Jeffries from Piper Sandler.

Hello. Thank you for taking the question. Greg I'm reflecting on your comments about no longer being able to rely on user volume growth and maybe an expectation for longer-term application accretion expansion. Are we at the point where you expect that to be a pretty linear cadence each year? Or is this a comment about the longer term that you'd expect continued expansion? I'm trying to understand, if we're at the point where user growth is not growing net per year or if we're trying to increase the monetization up level of the individual employee with the application mix as soon as 2024?

Well, first I might say that our observation about user volume is particular, where we see it most in the E365 universe, where we literally charge for application day. And it's those accounts, the large ones that have the latest data. We saw one out of every 10 positions is open and they face retirements faster than they can add new colleagues. So they're literally emphasizing workflows that save user days. And we're delivering those through blueprints and more specialized applications. I think that can inflect even faster because the – these firms are the same ENR, top firms who spend 1% of what they build on software and realize it will be smarter for them to have more productive hours and that's the only way for them to grow their business and meet their backlog. So I don't think it has to be only a linear progression from what is spent now per infrastructure engineer to what could be spent and is already spent by other types of engineers on software. We've been talking about that comprising our TAM if you like for a long time. And it's – the pressures are causing it to accelerate now I think.

Thanks, Clarke. Our next question comes from Jason Celino from KeyBanc.

There we go. Good morning.

Hey, Jason.

Maybe one for Werner, does 10.5% to 13% ARR growth guidance for the year, I know you mentioned it a wider than normal range but any way to unpack like what that headwind is in China, the lower maybe M&A contribution and then the third piece that was mentioned in the press release?

Yes. Well, on acquisitions we had 100 basis points in the outlook in 2023. And we just expect that this is coming down from that level. Actually we have in 2023, the contributions were less than 100. We were at 70 basis points in 2023 and 2022. And so we're taking expectations down also underline what Greg mentioned. Between China lower escalations. We don't really want to break it out clicking down further. That's a right range of potential outcomes. And satellite momentum for our key growth drivers is very consistent, micro trends are pretty consistent. And there's incremental upside from the asset analytics business that we talked about. So it's a wider range of outcomes.

Okay. Great. That was helpful. Thank you.

Thanks, Jason. Next question comes from Michael Funk from Bank of America.

Hey, good morning. How are you doing? So Greg, thank you again for all the color on digital twins really helpful. And good to hear the updated commentary on the tower business. As we're thinking about how that business scales, it'd be helpful though to get maybe some more metrics there. So Greg, there might be approximate about 160,000 towers in the US, for example. Can you give us a sense of how many towers you're actually servicing today and how that's ramped the last couple of years? And a related question, are the tower construction companies like MasTec are they also a gating factor is the telecos might have contracts with them for maintenance? So something about how quickly that business can ramp based on those factors?

I believe this is primarily a business involving existing towers. Our subscriptions have fluctuated over time, depending on how well the ecosystem can handle Digital Twins. We started the year with annual recurring revenue in the seven figures and I'm confident we'll reach eight figures by year-end. However, there are some sensitive procurements happening right now that prevent me from sharing more details. I see potential in Blyncsy, which is focused on crowdsourced AI for maintenance condition detection. This can operate daily or even multiple times a day for several of our DOTs, and we can enhance the value of those AI insights by connecting them with both the ET and IT related to maintenance. It's exciting to combine these elements. I expect that in about a quarter, we will have a full announcement with a new name for that business. Currently, we are focused on winning this business and will communicate more about it throughout 2024.

That's great. Just for clarification, Greg. From the tower business, you're charging per asset and then for the Blyncsy’s business you're charging per mile. Can you give us a sense of the economics there? I mean, what you charge per tower monthly, quarterly, annually and the same for the Blyncsy’s business?

For the tower it's three digits per year, per tower and we have standard pricing. For roadway mile, with Blyncsy it also is a standard pricing, but it depends on which AI insights you want and how frequently you want them. But we're trying to make all of this standard price book. We want to have many partners selling for us the engineering firms to be offering this to their owner-operator, accounts where they can add their proprietary analytics on top of ours and where they won't have to worry about doing the back office processing, because we're going to be very proficient in doing that at scale and economically and at high quality.

Thanks, Michael. The next question comes from Jay Vleeschhouwer from Griffin Securities.

Hi, good morning. Thank you. Greg, in your comments about the 2024 developments, you mentioned the asset analytics. Would you relate that to the industry solutions concept you've discussed previously, for example, at YII? If so, could you elaborate on other key product deliverables you anticipate for 2024? Additionally, do you think customers might be more willing to adopt new technology more quickly these days compared to the past?

I believe everyone is eager to understand how AI can be beneficial to them right now. With asset analytics, we aim to provide an immediate entry point so users don't need to begin with the overall concept of digital twins from the outset. For instance, with Blyncsy's crowd-sourced imagery, results can be available the following day without the need for extensive surveying. The main distinction of our asset analytics from other industry solutions is our focus on creating an ecosystem. Our goal is to develop a platform that supports an ecosystem approach, allowing partners to tap into AI opportunities without starting from square one, blending ET, IT, and OT. We plan to launch our offerings mainly through ecosystem partners, including maintenance organizations and engineering firms. The key question is how to leverage this opportunity now, as owners are currently aware and interested. The mention of AI has prompted them to realize there's likely something they can begin with immediately, and that sets us apart.

Thank you.

Thanks, Jay. Next question comes from Matt Martino from Goldman Sachs.

Good morning. Thank you for the questions. Greg, you mentioned a potential shift in small and medium-sized businesses from perpetual licenses, which appears to be a trend we've seen for several quarters now. Could you discuss what is driving this preference for licenses in small and medium-sized businesses and how this is impacting overall momentum and competitive advantages in that space? Thank you.

Well, Matt, it's really interesting. Our license sales went down year after year after year determinably because, of course we refer subscriptions. It's clear why in China, if they're worried about Americans being able to continue to do business with them, they prefer to buy a perpetual license now, and Nicholas saw that for himself firsthand in December. But over an SMB, we all scratch our heads a bit, why would you prefer a perpetual license? As you know, our competitor doesn't offer a perpetual license. So that's the reason to call the competitive differentiator. And the anecdotally, what we hear from those who, then it's 400 of them, new logo license purchases SMB in this quarter, and they say, the sun is shining. Our business is good. We'd rather buy our software now and be able to continue to use it for multiple years. And we say that's a different way of looking at the way you would trade off discounted cash flow and so forth, if you're a sophisticated large business. But let's not dictate to them how they should look at their choice of acquiring technology, let's get on with it. So, it's a good opportunity for us. It's not large in the scale of our overall ARR, but we hope to continue to grow these new logos forever into our conventional enterprise programs.

Thanks, Matt. Next question comes from Joshua Tilton from Wolfe Research.

Hey, guys. Can hear me?

Yes.

I just kind of have a bit of a high-level one. But I guess if I step back, it sounds like you guys are focusing more on new logos, you expect less contribution from M&A than you have previously. You called out a strategic realignment and there's a bigger focus on perpetual. So what I'm just trying to understand is there like bigger changes in strategy going on under the hood? Or am I just reading too deeply into the commentary that you guys gave us today?

No, I believe we should continue with what is working well. We finished the year with our ARR growth at an all-time high, except in China where we are intentionally changing the business for the reasons mentioned. We would love to accelerate growth with the AI opportunities, and the digital twin opportunity, along with NanoAI, provides us an entry point. Regarding the SMB market, we are increasingly convinced that we have overlooked its potential, and we are excited to pursue it now. Overall, our strategy involves committing to improving our operating margins, including stock-based compensation, by 100 basis points annually. However, we want to grow ARR as quickly as possible. The ideas you raised are all timely and actionable in the coming year. In terms of M&A, we only invested $38 million last year, which included DC investments. This year, we will focus particularly on opportunities in asset analytics. We may not find suitable options, but if we do, we want to make the right acquisitions like Blyncsy. Blyncsy was initially presented to us as a potential VC investment, and we aim to consolidate and integrate such opportunities so we can provide a platform advantage and serve as the back-office provider for AI and reality modeling processing at scale. We recognize the challenge for organizations with robust proprietary analytics capabilities that lack the resources for an effective back-office experience, and we plan to excel in this area. I am enthusiastic about the new and exciting developments, but this does not overshadow our strong performance in our core business.

Super helpful. Thanks, guys. This will conclude the Q&A portion. Werner, do you want to touch on ARR seasonality?

Yes, I’d like to add a comment about ARR seasonality. Our last programmatic acquisition that made a significant ARR contribution was EasyPower in the first quarter of 2023, which will drop into the trailing 12 months baseline by the end of Q1. Additionally, a larger portion of our E365 accounts experienced floor resets in Q4, and they'll gradually transition from that floor into the usage category throughout the year. Therefore, we anticipate that Q1 will represent the seasonal low in terms of ARR growth, and we expect to see significant growth as the year progresses. This is our perspective on ARR seasonality.

All right. So, 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.

Thank you.

Thank you.

Cheers!