Bentley Systems Inc Q4 FY2024 Earnings Call

Good morning, and thank you all for your interest in BSY. After my remarks, CEO Nicholas and CFO Werner will discuss our successful conclusion to 2024 and our consistent financial outlook for 2025. Today, as we reflect on our fifth year end as a public company, we aim to benchmark our long-term progress against shareholder priorities. In our introductory Investor Relations presentation, we outline the goals we aspire to achieve with our investors. I believe that 2024 has significantly advanced our success in meeting these goals. Following our planned CEO transition that occurred midyear, Nicholas will provide details on organizational changes aimed at enhancing product innovation within our overall strategy, reinforcing our focus on technically adept leadership, particularly in engineering. In 2024, subscriptions grew to 90% of our total revenues, providing improved visibility, quality, and consistency. Our strategic acquisition of Cesium in 2024 has expanded our platform in geospatial digital twin developments, in line with our acquisition strategy in asset analytics. The adjusted operating income for 2024, including stock-based compensation, exceeded our goal of a 100 basis points margin improvement annually. With a higher share of revenues recognized ratably and paid annually in advance in 2024, we efficiently converted adjusted operating income into free cash flow, net of stock-based compensation. Despite most of our annual recurring revenue being consumption-based, we've improved the sustainability and visibility of double-digit ARR growth through multiyear contracts tied to our primary commercial program, E365, which is projected to maintain a net revenue retention rate of 110%. For the full year, organic ARR growth excluding China was consistent with and built on 2023. This creates a strong investment case if achieved consistently over the long term. Let's evaluate BSY's performance since going public in relation to shareholder priorities. A key priority is managing our share count to prevent dilution. The trend in shares held by the family is evident. Although shares have been sold at an average annual rate, we still retain the economic majority. Share sales were necessary due to distributions from our holdings and the company’s deferred compensation plan triggered by retirements, requiring sizable sales to cover ordinary income taxes. Fortunately, most such shares are now restricted. Here, we show the remaining shares in the average fully diluted count each year, excluding those related to our convertible notes. Additionally, we’ve included the share count associated with convertible notes to capture the full expansion of the company's capitalization. Our non-convertible net debt has been minimal throughout this period. Therefore, it seems reasonable to consider the compounded annual growth rate of 2.8% in the total share count as a proxy for the growth in our capitalization. Adjusting for our dividend yield of about 0.5% provides a suitable baseline for comparing per share growth rates against financial performance metrics, starting with reported revenues. For better comparison, here’s the same revenue history at constant currency, which shows an annual growth rate of 14.5%. While we have excluded growth from newly onboarded platform acquisitions when assessing business performance, here we need not do so since the earlier share growth appropriately accounts for the capital increases required to finance those acquisitions. The professional services revenues presented here were accumulated through our strategic acquisitions. While I advocate for a long-term strategic approach to digital integration, this revenue source can be volatile and detracts from profitability, so we should moderate rather than maximize it. License revenue is dependent on participants in China and potentially on budget cycles. It is also noteworthy that constant currency subscription revenues, deemed our key revenue metric, have grown to represent 90% of our total revenues, with an annual growth rate of 16.3%. Therefore, to double subscription revenues over five years from 2020, we need to achieve specific targets for 2025. Subscription revenue is fundamentally aligned with our key performance measure, ARR. Each year-end reflects constant 2024 budget exchange rates. This includes cumulative ARR onboarded with platform acquisitions, which also has a compounded annual growth rate of 16.3%. Interestingly, the ARR onboarded annually through programmatic acquisitions has been increasingly insignificant. Our ARR in China has seen a significant and structural decline in recent years. Thus, when excluding China (but not Russia) and all onboarded ARR from platform acquisitions, we see an annual growth rate of 13.6% for ARR in constant currency. Back to overall ARR, we have outlined the target ARR level for the end of 2025 that would enable us to double over the five years from 2020. To evaluate profit compounding in terms of free cash flow, we refrain from using constant currency accounting. Here is the adjusted operating income as reported. For 2020 and 2021, we also noted adjustments for unexpected expense savings, primarily in travel and events. We measure operating margins after accounting for stock-based compensation, recognizing its economic equivalence with cash compensation. Our compounded annual growth rate for adjusted operating income, factoring in stock-based compensation and pandemic adjustments, stands at 20.4%. The amounts necessary for profitability in 2025 to achieve a doubling over five years from 2020 are indicated, highlighting the variance based on including or excluding pandemic adjustments. Transitioning to free cash flow, we report this alongside pandemic adjustments and tax effects at a blended 21% tax rate. We don’t consider cash flow to be genuinely free until we account for the need to repurchase stock to offset potential dilution from stock-based compensation. Our net free cash flow generation, after deducting stock-based compensation and pandemic adjustments, has compounded at an annual growth rate of 18.5%. We present the amounts required for free cash flow net of stock-based compensation in 2025 to double over five years from 2020, again noting implications of pandemic adjustments. Finally, we've highlighted the proportion of annual free cash flow allocated to dividends. We will soon see in Werner's presentation of the 2025 financial outlook how these key financial metrics and CAGRs over our four-plus years in the public market aim to meet a classic compounding threshold of doubling over five years. Most importantly, I believe our company’s goal should be to maintain at least this benchmark compounding every five years independently, and now I’ll turn it over to Nicholas and Werner to discuss Q4 2024 and provide the consistent outlook range for 2025. Thank you.

Thank you, Greg. I want to start by thanking our team for delivering another strong quarter and year. We finished 2024 strongly in terms of ARR growth, profitability, and free cash flow. The global demand remains strong across most sectors and regions, and our users are optimistic about market conditions. We also introduced a new Chief Operating Officer and made organizational changes to speed up innovation. We are well aligned with our users' priorities as we enter the year, positioned to maintain robust financial performance in 2025 and beyond. Our outlook for 2025 aligns with our longer-term goal of low double-digit ARR growth, 100 basis points of margin expansion, and strong cash flow generation. As for Q4 highlights, ARR growth was 12% year-over-year and 12.5% when excluding China. Taking into account the impact of newly onboarded programmatic acquisitions, our results were quite similar to the previous year. Regarding our commercial models, the E365 program continues to show strong growth, especially from renewals with higher floors driven by consumption growth, as well as notable contributions from conversions. Across our models, application mix growth remained strong but has moderated slightly, while our net revenue retention returned to a high of 110%. For several reasons, we no longer view application mix growth as a useful measure for growth among existing accounts, particularly since it does not capture growth from offerings that aren't user-based, which we expect to increase, such as Bentley asset analytics. Therefore, we plan to introduce a new metric to better capture overall consumption growth. We see significant growth potential within our accounts as they adopt more advanced and complementary products. In Q4, we also achieved 300 basis points of ARR growth from new accounts, mainly from small and medium businesses, including over 600 new logos through our line store for the twelfth consecutive quarter. ARR growth from new accounts in the quarter could have been even greater if not for a significant number of small and medium enterprises opting for perpetual licenses instead of subscriptions. Our performance by sector in Q4 was consistent with previous quarters. Public Works utilities ended the year with great momentum, driven by strong infrastructure spending globally. Even though new mine investments remain soft, resource growth is steady, while industrial and commercial facilities are showing modest growth. Looking at regional performance, EMEA had a strong quarter with growth across much of Europe and the Middle East. The Americas also delivered strong growth with steady trends in North America and Latin America. Despite uncertainties regarding federal spending in the U.S. with the new administration, the broader infrastructure engineering community predicts continued infrastructure investments, though the mix may change. Funding is expected to shift towards more traditional power sources and increased road work instead of high-speed rail. The administration has announced it will significantly invest in AI, increasing data center and power transmission development. We anticipate that permitting reform will be a priority for the administration and Congress, expediting new power transmission corridors and mine exploration, which will benefit our power line systems and sequenced businesses. Bentley Systems is well-prepared regardless of the types of infrastructure funding due to our wide software portfolio. The Asia Pacific region, particularly India and Southeast Asia, showed continued strong sentiment for 2025. However, China continues to grapple with soft economic conditions and a shift in preferences by state-owned enterprises towards local software and, at best, perpetual licenses, leading us to expect a decrease in ARR in China this year, which now accounts for less than 2.5% of our total ARR. On the product front, we made significant headway in our portfolio in 2024. At Infrastructure 2024, we launched Open Site Plus, which represents a new generation of AI-powered infrastructure engineering applications. We enhanced our platform through the acquisition of Cesium, bolstering our 3D geospatial capabilities and our developer community. We are also pleased with the performance of Bentley Asset Analytics introduced in 2024, which helps create digital twins of infrastructure assets and analyze their conditions using AI. This year has been one of learning for us and our users as we explore this emerging growth area. Initially focused on asset operations, we have found opportunities in construction, with early subscriptions linked to project durations. Looking ahead, we expect Asset Analytics to present a significant opportunity. Our product strategy is in line with industry needs, as illustrated by the most recent AEC advisers survey, which reflects our investments to date and future direction. This quarter, we addressed the growing engineering resources capacity gap; there simply aren't enough engineers to satisfy the demand for improved infrastructure. This challenge was noted in the survey, where CEOs named workforce productivity as a key priority. They require digital solutions that enhance productivity, a demand we are prepared to meet. We are noticing an abundance of data from various sources, yet much of it remains unanalyzed and unused. Most infrastructure projects commence with a blank screen. CEOs highlighted data management technologies as essential, indicating firms recognize the necessity of better organizing and utilizing their data to boost productivity. This situation creates opportunities for Bentley Infrastructure Cloud and especially the iTwin, designed to extract and organize data from any engineering file for better usability. This emphasis on data management is further propelled by artificial intelligence. Firms realize AI's potential to maximize data use, including through generative AI to greatly enhance workforce productivity. They are focusing investments on digital transformation and compiling data for machine learning. We anticipated this trend years ago when we began investing in AI, starting with asset performance and expanding into project delivery, as seen with Open Site Plus in Q4. Moving forward, engineering firms expect to meet clients' digital needs while exploring new services and business models, and they increasingly see value in digital twins during the operations phase. Both of these trends highlight the opportunity for Bentley Asset Analytics. Engineering firms can utilize Bentley Asset Analytics for asset operations and maintenance across various applications, including Bentley Infrastructure Cloud and our AI-driven digital twin solutions. Bentley is well positioned as the partner of choice for infrastructure engineering firms and asset operators. Our product investments align with current and future industry demands. AI is transforming all sectors, including infrastructure, and we plan to continue leading the charge, which is why we announced important organizational changes earlier this year. We are eager to welcome James Lee as our Chief Operating Officer. He joined us from Google, where he oversaw startups and AI at Google Cloud. Prior to Google, he had a long tenure at SAP, including roles as COO for multiple divisions. James will enhance our cross-functional alignment, drive operational excellence, and oversee key regions and growth initiatives, including Bentley Asset Analytics. Other changes included consolidating product development under the Chief Technology Officer to better align execution with technology strategy and foster innovation. We believe this positions us better to seize the growth opportunities in infrastructure AI, ranging from Bentley Asset Analytics to the next generation of Bentley open applications. I will now hand over to Werner to discuss our Q4 financial results and the outlook for 2025.

Thank you, Nicholas. We are pleased with our finish to a solid year of financial performance. Total revenues for the fourth quarter were $350 million, up 13% year-over-year on a reported and constant currency basis—and for the full year, total revenues were $1.353 billion, up 10% on a reported and constant currency basis. Strong subscription revenues in the fourth quarter and full year were partly offset by lower services revenues due to reduced maximum related work within our digital integrator cohesive. Subscription revenues now represent 90% of total revenues, up more than 2 percentage points from 2023, improving the overall quality of our total revenues in terms of growth consistency, predictability, and margin contribution. Subscription revenues grew 16% year-over-year for the quarter and 13% for the full year in reported and constant currency. The growth rate for the full year tends to more closely align with our year-over-year constant currency ARR growth. Our SMB and E365 initiatives continue to be solid contributors, with E365 now representing 42% of 2024 subscription revenues, up from 38% in 2023 and 32% in 2022. Perpetual license revenues for the quarter grew 11% year-over-year in reported and 12% in constant currency. For the full year, we are flat in reported and constant currency. Our service revenues declined 21% for the quarter and 18% for the year in reported and constant currency. Our last 12 months recurring revenues, which include subscriptions, and a small amount of recurring services increased by 13% year-over-year in reported and constant currency and represent now 91% of our total revenues, up 2 percentage points year-over-year. Our last 12 months constant currency account retention rate remained at 99%, and our constant currency recurring revenue net retention rate rebounded to 10%, led by accretion within our consumption-based E365 commercial model. We ended Q4 with ARR of $1.283 billion at quarter-end spot rates. On a constant currency basis, our trailing 12 months ARR growth rate was 12% year-over-year and 3.2% on a sequential quarterly basis, consistent with this year's expectation for a seasonally biggest contract renewal quarter. Excluding China, our ARR growth rate was 12.5% year-over-year. Our GAAP operating income was $61 million for the fourth quarter and $302 million for the year. I have previously explained the impact on our GAAP operating results from deferred compensation plan liability revaluations and acquisition expenses. Two other items that were recognized in our financial statements in 2023 will need to be considered for profitability comparison purposes. During '23 Q4, we initiated a strategic realignment program, our first since 2020. We incurred a realignment charge of $13 million, mainly for severance, causing the first half of 2024 to appear relatively profitable as we work to reinvest associated run rate savings into priority areas such as AI and product development and marketing. We were fully reinvested by the beginning of the third quarter of 2024. Secondly, during '23 Q4, within our income tax line below operating income, we recognized a net discrete income tax benefit of $171 million relating to an internal legal entity restructuring of our Sequent IP ownership. 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, flat year-over-year, with a margin of 21.5%. The margin decline of 250 basis points is primarily a result of our OpEx seasonality and impacted by the timing of the full reinvestment of our run rate savings from the realignment. Combined with our fourth quarter being seasonally our highest OpEx quarter due to larger promotional and event-related activities and costs. For the full year, our adjusted operating income with stock-based compensation expense was $372 million, up $47 million or 15%, with a margin of 27.5%, up 110 basis points year-over-year, in line with our expectations and outlook for the year. Our operating cash flow was $82 million for the quarter and $435 million for the year, up $18 million or 4%. Remember that our fiscal year '23 cash flow from operations was particularly high, increasing 52% over 2022 due to a significant collection delay from '22 Q4 into '23 Q1. Benefiting from strong collections at the end of the year, our '24 conversion of adjusted EBITDA to cash flow from operations was above our expectations at 94%. Starting for 2025, rather than guiding to such a conversion rate, we will provide an outlook range for free cash flow. Regarding our 2024 capital allocation, along with providing sufficiently for our growth initiatives, we deployed free cash flow as follows: $130 million on acquisitions, $147 million paying down bank debt, $77 million for effective share repurchases to offset dilution from stock-based compensation, and $72 million on dividends. At the end of Q4, our net senior debt leverage was 0.2x adjusted EBITDA, including our 2026 and 2027 convertible notes as debt. Our net debt leverage was 2.9x, down from 3.5x at the end of 2023. Our 5-year senior secured credit agreement entered into in October 2024 provides a $1.3 billion revolving credit facility and an incremental $500 million accordion feature and sufficient flexibility to address the January 2026 maturity of $690 million of convertible debt. Our existing debt is protected from higher rising interest rates by virtue of very low fixed coupons on our convertible notes and our $200 million interest rate swap expiring in 2030. Our 2025 financial outlook is consistent with our sustained objectives of low double-digit ARR growth, approximately 100 basis points of annual margin expansion, and strong free cash flow conversion. It reflects our confidence in continued favorable market conditions and in the momentum of our growth initiatives. Based on current exchange rates, we anticipate total GAAP revenues in the range of $1.461 billion to $1.490 billion, or $1.481 billion to $1.510 billion in constant currency, reflecting an approximate 1.5% headwind to revenue growth in constant currency. Our outlook range for our mainstay subscription revenues, representing 90% of total revenues, is growth between 10.5% and 12.5% on a constant currency basis. We expect that our less predictable and less controllable perpetual license revenues and services revenues, together representing the other 10%, will remain relatively flat on a constant currency basis. Going back to Greg's slide. Based on our outlook, we will have doubled our constant currency subscription revenues from 2020. Our outlook range for constant currency ARR growth is also 10.5% to 12.5%. When compared to our ARR growth outlook range for 2024, the low end of our 2025 range is consistent, but we are narrowing the top end of our range by 50 basis points, taking a more conservative view on China, where we expect continued attrition. While as in 2024, we believe that asset analytics represents incremental upside opportunity, we have found that a significant portion of use cases during the construction phase of an asset may not all be accounted for as ARR. So again, based on our outlook, we will have doubled our constant currency ARR from 2020. We expect an adjusted operating income with stock-based compensation margin of approximately 28.5% to deliver on our standing commitment to expand our operating margin by approximately 100 basis points annually. Our adjusted operating income with stock-based compensation will have doubled from 2020 when normalized for 2020 COVID windfalls, and we will be close to doubling without normalizing for such windfalls. Our outlook range for free cash flows is $450 million to $455 million. This considers cash interest of approximately 0 net of the payments we expect to receive from our interest rate swap, cash taxes of approximately $75 million, and CapEx of approximately $20 million. Based on the expected seasonality of collections and expenditures, we expect approximately 55% to 60% of our free cash flows will be generated during the first half of 2025. Finally, in relation to free cash flow less stock-based compensation, we expect to fall short of doubling from 2020 without normalizing for COVID windfalls. However, we expect to double when normalizing for such windfalls. In terms of capital allocation, we are announcing another annual increase of $0.01 in our quarterly dividend, which affords compounding cash flow to be allocated to programmatic acquisitions and debt service. To help you with your models, we expect our sequential ARR and revenue growth seasonality to be back half loaded, similar to 2024, and our OpEx seasonality will be closer in line with 2023 now that the volatility from our strategic realignment is behind us. We expect stock-based compensation to decline to approximately 5% of revenues in 2025 and then to trend back up towards a long-term norm of 6%. I also include here on this slide additional explanations on interest expense, effective tax rate, operating depreciation and amortization, and outstanding shares. And with that, I think we are ready for Q&A.

Our first question comes from Matt Hedberg from RBC.

And congrats on another good year. I think, Greg, you really gave us some perspective on the results since the IPO. It was sort of great to see the progression, and it seems like we should expect more of that. On the call, you noted a robust demand environment, you noted that China continues to be a drag. It seems like you addressed that at the high end of your full-year ARR range, 50 bps lower than last year. I guess that said, there's a lot of positivity that you talked about on the call in terms of potential drivers. I guess when you step back and think, this year, you were near the high end of the ARR range there in 2024, what are the 1 to 2 things that could propel you to the higher end of the ARR range as you embark on a new calendar year?

Nicholas, you're applying yourself to that?

I will be happy to. So the overall environment, demand environment is robust. You know that mining has been a bit slow in the past, more than 1 year now, 1.5 years or so. It's a bit of a subdued environment for new mine exploration or enhancements or major expansions of existing mines. If this changes because of, for example, acceleration of permitting reform in the U.S. that is leading to new mine explorations, this could be an extra tailwind. The business is already very, very strong when it comes to PLS, so the power line system for the transmission grid. But if permitting reform does accelerate, and it leads to an acceleration of the expansion of the electric grid, this could be an additional tailwind. So I think this will help. Now the 2 drags that we've seen for ARR have been China, as discussed many, many times, and then even though it's a very small percentage of our business, it's a single-digit commercial facilities, if this were to improve as well, then of course, this will help. Look, in general, as we start the year, the trends are remarkably consistent with what we said every quarter last year. The demand environment is just very similar to what we've been discussing for the past quarters. Anything that has been holding us back in 2024, if that improves, then of course, this will be an extra tailwind.

Next question comes from Jason Celino from KeyBanc.

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

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

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

Next question comes from Siti Panigrahi from Mizuho.

I want to ask you about the macro environment, how do you compare—and if you look at the data point, how it's trending versus last year? And then specifically in the U.S., now election is over and the administration is finally in place. How do you characterize the change in priorities there versus expectation? And also, do you see any impact from those initiatives?

I'm going to ask you, Nicholas, to talk about the world at large, and maybe I'll come back to the U.S.

Okay, happy to. So look, in Europe, for example, despite the political volatility we've seen in France and very recent elections in Germany, elections back in Q4 when it comes to the U.K. or the second half of last year, there is a strong alignment that infrastructure investments are needed. So it is a bipartisan topic. If you are not just in the U.S., as Greg is going to explain, but in Europe as well, the new government in the U.K. is as variable, if not more, for investments in infrastructure. So we expect the level of investment to be the same, if not higher. In Europe, the new European Commission has laid out its priorities of competitiveness, resiliency, and security. Every single one of these priorities is highly related to infrastructure. In fact, today, the European Commission talked about its plan for increasing the competitiveness of Europe, and it again referred to additional investments in infrastructure. So that's clear. We see infrastructure investment going strong all around the world. There is a wide consensus that this is needed to support the economy, to improve the quality of life in some regions, to secure energy, and to make sure infrastructure is resilient in the face of climate change. Those are very secular trends. The only country where we've seen a slowdown, as we discussed many times, is China.

If I go back to the U.S., of course, we have a purposefully unpredictable administration here now. But the engineering organizations in the U.S. whose business is to read these key leagues are not concerned. My view is that they are already at their capacity, their resource capacity, and do not see any possibility that there will be less federally funded infrastructure work, even though its mix will somewhat change possibly to our advantage.

Next question comes from Kristen Owen from Oppenheimer.

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

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

We like both opportunities. The majority is in asset operations, but construction is a nice way to start. Once there is a digital twin from construction, we think we stand a good chance of, in fact, having it renewed during asset operations, but that's also often a different sale to a different party, and we can't take that for granted. All of the opportunities are burgeoning in this, and we're learning about the business model potential for this asset-based monetization.

The next question comes from Dylan Becker from William Blair.

I appreciate the question. Maybe Nicholas, for you. I wanted to— you called out kind of Jason and Julian coming on board. I wonder if you could kind of highlight or flag the opportunity and kind of what excites you most. You called out kind of data readiness, data management as a key initiative, obviously has the expertise coming from Google on that side of the equation, and the streamlining of the product development motion under Julian's team, how that can kind of accelerate value and innovation for customers as well.

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

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

And the next question comes from Jay Vleeschhouwer from Griffin Securities.

Thank you—you noted the multiple responsibilities for the new Chief Operating Officer. Are there 2 or 3 principal objectives or executables for the COO role that you would like to see for this year and beyond? For example, at the investor meeting in Vancouver a few months ago, you noted that you had integrated your customer success and account teams. Maybe talk about how that's going or other go-to-market priorities that the COO has.

Thanks for that question, Jay. Just to be clear, the scope of the CEO is quite different from the COO scope I had. The sales and marketing and success management teams all report straight to me. But we did combine account management and success management under Brock, our Chief Revenue Officer; and this has helped tremendously in making sure that we have 1 account plan. We're actually clear for each account on what the growth opportunities are for consumption, and we execute very seamlessly about it. The overall team here is simplification. The same way that we've combined account and success management together. On the product side, we've combined product and technology together. Simplification in order to have more agility and be able to execute with more precision and speed. So now when it comes to James as our COO, he does have a cross-functional role, helping in both planning and execution and making sure that we are coordinated. It will be at a high level of what I just described. It will be, for example, on the industry solution dimension that we've talked about many times, Jay, this now reports to him. So keeping the industry dimension front planning all the way to go to market. But he's also in charge of portfolio development. A big priority we have is on asset analytics, which he also has responsibility for, along with some of our growth initiatives, including asset analytics.

Something that comes out from James. He is very—he's a proponent of commercial innovation and commercial models and engineering. I use the term engineering to refer to the way in which we monetize and bring some new learnings from that that I'm enthused about.

The next question comes from Michael Funk from Bank of America.

So Nicolas, I think in your prepared remarks, you mentioned that the new administration, there would be some shift in infrastructure spending. So for example, towards roads and away from other projects. Could that shift create an air pocket at all in demand from those customers if they also shift their focus, their priorities maybe from 1 project to another and just the uncertainty created by that potential shift? Should we expect any kind of air pocket in demand?

I don't think so for the simple reasons that the engineering firms in the U.S. are already quite busy and their backlogs are extending 1 year, if not more out. So it's going to be a shift in terms of projects—new projects potentially coming in, yes. But there’s a bit of a lag before it hits actually the engineering firms and then their use of our software, right? Now we are very well positioned to benefit from any infrastructure investments regardless of the infrastructure assets, whether we're talking about more traditional energy production or renewables, whether we're talking about roads versus railways, or a major expansion of airports. Across all infrastructure assets, we have a very broad portfolio of products to help.

Yes, I'll just say, generally, I think the expectation continues to be that the spending is pushed further out for longer, which corresponds to the capacity in any case. There is discussion in Congress at the federal level in the U.S. about the next infrastructure initiative following the JA. Of course, our users are very experienced readers of these tea leaves, and they have great confidence.

The next question comes from Alexei Gogolev from JPMorgan.

I had a question about the competitive environment. Maybe you could talk about how it has fared in the last 12 months. We've noticed that some of your competitors claim that they've taken some share from you. So could you maybe comment on that and talk about what you see evolving across different markets?

I think it's clear that for those competitors who are very focused on commercial facilities, for example, because of the slowdown, they've been trying very hard to get into infrastructure, civil infrastructure in particular. You can see our growth, which is very consistent. We're not losing share to anyone. We've seen some competitors doing some desperate measures, for example, dropping their price quite a lot. It was quite reassuring to see that our accounts are sticking with us; this is not enough of an argument for them to use competitive products. Look, when it comes to infrastructure, there is just no other competitor out there that is that dedicated to infrastructure and has that breadth and depth of portfolio of products like we have. So this—the fact that we remain very focused over the past few years is definitely paying dividends. No pun intended.

The next question comes from Joshua Tilton from Wolfe Research.

Yes. I kind of at a high level one, maybe just backing up a little bit. I know a bunch of questions have been asked. But maybe just everything you spoke to in the prepared remarks, the election, the changes, what's going on in China. It just feels like there's a lot of moving pieces. If we were to simplify all the moving pieces that you see heading into this year, do you believe that the demand environment is more, less, or the same favorable in '25 than it was in '24? I'm just trying to understand how we're to interpret all the different moving pieces as it pertains to your demand in the business environment for you this year.

I think the overall picture is that things are full up. The infrastructure engineering community could hardly be any busier elsewhere, and that won't change foreseeably, but in China, I have to say how disappointing China is. It's qualitatively—the first year 2025, we do not have an internal plan to grow or even maintain our level of business in China. Every other year, we haven't counted on it, but we believed it would be possible. Because of the good match between our products and the demand in China, we hoped we could sustain it at least. Our plan for this year is that we continue to lose business in China. It's at the level where the state-owned enterprises, the CEOs have to personally vouch for any use they make of American software. They have to attest that there are no domestic alternatives. It's never been that bad before. In that environment, we can't hang on. So that is, I think, the principal difference. That's the 0.5 point at the top. There is no way that we can see to maintain our business in China during 2025. Who knows what might happen geopolitically? I suppose we should put nothing outside the realm of possibility, but we don't see any path to sustaining that in 2025. Elsewhere in the world, that's not the picture at all.

Elsewhere in the world, it's very consistent, and it's very favorable. So that's to summarize, yes, consistent, favorable demand backdrop, the only exception being China.

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

Not all the business there is state-owned enterprises. There are highlights in Hong Kong and SMB, but the economy there and the change in spending is also notable. We'd be talking about that alone if it weren't for the geopolitical issues as well. So combined, this year, realistically, we can't even get back to a level in China. Well, it's still 25% of the world's infrastructure engineering, and we still have a good mix between our products and demand there. We just need to get somehow more creative yet, and that's where James, with on-the-ground experience in China and different business models, will be one of his projects to consider how we get ours in the long term there.

The next question comes from Matt Martino from Goldman Sachs.

Greg, Nicholas, you guys made reference to the launch of Open Site Plus and some of the AI-powered features there. It's clear we're starting to infuse AI across the product portfolio. I'm wondering to what extent these new AI-powered features are starting to benefit your renewal activity and how you think about the opportunity more holistically to monetize your growing AI portfolio over time?

I think it's—the revenue impact is going to be very marginal this year when it comes to Open Site Plus because the product is in early access, and we're planning GA towards the end of the year. Where we're having are generating traction with AI is with asset analytics. So it's AI applied to asset operations. We think the opportunity is big on both fronts. AI for Asset Analytics operations—this is a—we talked about it at some point, a potential on top term of 9 digits—and then when it comes to AI for, let's say, design, we're just at the beginning of this, but we think this has a lot of potential not just to sustain our growth but, in the long term, to even potentially accelerate it.

Last question comes from Blair Abernathy from Rosenblatt Securities.

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

Maybe all of the above because data centers are a bit like mini cities. Besides the building itself, there is an entire infrastructure around it for transportation, electricity, and water. This obviously can become some growth policy by its own but indirectly as well because there's so much electricity needed in order to power those data centers. It can lead to the extension of the transmission grid which will benefit us as well. We can even help, by the way, with our sequence software to help understand where aquifers are in order to be able to tap into underground water to help with the cooling of data centers. So we can help all of the above. We can also help underground, and we can help across the asset lifecycle. We have software for design, construction, and then obviously for the operations of, let’s say, the system of systems that these mini cities that data centers represent.

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

That concludes our call today. We thank you for your interest and time in Bentley Systems. Please reach out to Investor Relations with further questions and follow up, and we look forward to updating you on our performance in coming quarters. Thanks a lot.