Q3 2022 Bentley Systems Inc Earnings Call

Impact in China has tended to be offset by multiple favorable factors. We don't consider that there has been a sufficiently material change to women amending our established financial outlook for 2022.

This is particularly the case given that what we and I think you considered to be our key operating performance indicator.

This performance year over year, a or our growth rate is expressed in constant currency unaffected.

Unaffected by ambient FX oscillations, which consternate comparisons to the outlook.

It happens that our annual financial outlook for total revenues included the constant currency growth range, which continues to pertain.

And Wariner here quantified as we did last quarter the impact of actual 'twenty 'twenty to Q3, FX rates being different than the rates assumed at the time of our outlook and.

And cumulatively, assuming current rates remain in effect for the balance of the year.

Although adjusted EBITDA dollars are exposed to reported currency ethics, our annual financial outlook for adjusted EBITDA margin of 33% is relatively resilient. Thanks to our natural operating hedge with tolerably matching revenue currencies and expense carry.

Please.

Back in constant currency, the twenty-two Q3 business performance or our growth rate year over year.

And again after absorbing the Russia and related China setbacks during the year.

We remain nominally stable at 11, 5%.

Which again doesn't include 2.5% that they are our growth from the onboarding of Pls during 'twenty to Q1.

But to better understand our 'twenty to Q3 tone of business I would like us to look more closely at this year over year business performance, a or a growth rate compared to the same rate in 2020 to Q2.

We measure this K P I on a year over year basis, because of intrinsic seasonality due to the historical deliberately unequal distribution by quarter of contractual renewal dates of our annual subscriptions that would otherwise obscure.

Sequential quarterly trends and a or our growth by always including all four calendar quarters, two abstract from such seasonality sequential changes in year over year business performance. They are our growth rate are meant to signal real trends in the tone of business rather than other noise.

And hence one would expect that year over year, AOR growth to trend, whether up or down relatively smoothly rather than abruptly.

But looking back at 2021 we see that unusually.

In 'twenty, one Q3, the year over year, a or our growth rate jumped from 10% to 13%.

In retrospect, this seems to largely reflect pandemic locked down volatility.

But it is also the case that compared to our many programmatic acquisitions throughout 2021.

This years has been few and small.

While our business performance or our growth in other respects has been comparatively stronger in 2022 and for the baseline of 2022, Q2s trailing four quarters of year over year growth twenty-two Q3's year over year progression has to me.

Up for the dropping out of that aberrant and Lehigh 'twenty, one Q3 growth.

Accordingly, although 'twenty to Q3's year over year or business performance or our growth read nominally the same at 11.5% is 22 to two and effect, it's more than comparable implying an incremental uptick in tone of business, which we also can confirm subjectively.

Hey.

And indeed <unk>.

Adjusting for the earlier, Russia and related China onetime a our losses.

Business performance AOR is effectively growing year over year at the highest levels we have experienced.

A quantitative summary is that this year after three quarters and after absorbing the Russia related they are our losses.

And at the appropriate constant currencies, we have reached cumulatively about 70% of the AOR growth implied by the mid range of our annual outlook.

R 22, Q3 uptick in new business momentum leads into our seasonally strongest fourth quarter of renewals and AOR growth opportunities.

All considered.

In light of the risk of more geopolitical disruptions such as in 'twenty to Q1, especially in China.

As shown here and not including two and a half per cent from the Pls platform acquisition on boarding.

We continue to reaffirm the range of our full year 2022 constant currency business performance.

Our growth outlook.

While Nicholas will follow me by reviewing the tone of business at the level of products and regions.

The headline is accelerating new business momentum in the U S.

Which constitutes fully half of our business at current exchange rates.

Consistent with long standing expectations about the inception of funding from the infrastructure.

Survey includes these expectations about the level of backlogs a year from now.

I think the increase expected here corresponds to these engineers tracking of the I I J a flows.

I believe this crowdsourcing can help us to anticipate B S wise forward tone of business also.

We took note last quarter of this dichotomy between engineering firms skepticism about the overall economy.

And they're optimistic sentiment about engineering workload and their own prosperity.

Which has only become more extreme.

In each direction since then.

And finally back to the survey of Civil Engineers. This confidence significantly extends throughout the next two years the extent of the survey timeline.

I turn now from the U S engineering firms tone of business as that is so thoroughly surveyed back to our own usual colored by infrastructure sector, which last quarter showed a rather gratifying balance of green in terms of our new business productivity and for us that refers to the proportionate a R. R.

Both by sector the industrial.

Real sector continues its recent modest improvement to its modest rate of new business.

While E P. CS overall, particularly improved but haven't nearly covered to pre pandemic levels to a greater degree. This was due to the E. P. CS business in the resource sector rather than industrial.

The commercial facilities sector continues to surprise me with its directional resilience.

But in our mainstay sector public works and utilities, New business continues its sustained dependability.

Led by Civil engineering in the U S. As we've already covered.

The resources sector continues to lead as to relative new business strength and sequence mining and other environmental modeling and in offshore engineering increasingly for wind power.

All in all I think we are seeing a pleasingly sustainable balance of new business across all infrastructure sectors.

From sectors, let us now move on to review tone of new business in AOR growth by account segment and commercial model.

Starting with the SMB segment, among our 2000 Twenty's growth initiatives virtuosity has already propelled our new business productivity and S. N D to now be comparable proportionately to our enterprise comfort zone.

And is still literally taking off.

Again this quarter, we sold over 600, new logos, which continues to amaze me.

Contributing again, 3% within our business performance or our growth.

But of course, most of our new business opportunity is for accretion in our existing accounts.

Where our net retention rate is now 110%.

Our most productive source of accretion by far continues to be our E 365 consumption based commercial model.

Which again in 2022 Q3 contributed the majority of our AOR growth and to which we again upgraded dozens of enterprise accounts.

The invitation upon their annual renewals.

In turn the majority of E 365, they are our growth comes from consumption increases, including application mix accretion to use of more valuable products.

Within <unk> hundred 65, we appropriately share the consumption risk with our <unk> hundred 65 accounts.

It is to our advantage that these accounts are prioritizing going digital more than ever before.

Last month I attended the annual CEO conference organized by AUC advisors, which literally brings together the top executives of the firms who do the great majority of infrastructure engineering and at least the western World.

As the only sponsor Bentley systems helped again this year and the preparation of the second annual going digital survey of these Ceos.

I will now briefly go through a E C advisors reported their results to.

To share these firms perspective ongoing digital has that establishes the potential for our <unk> hundred 65 success.

In fact here are the infrastructure engineering Ceos ranked priorities for going digital it's good for us that winning more business and increasing capacity are now more important to the ceos than merely reducing costs importantly high priority is also assigned to quality improvement new biz.

This models and automation.

Which only going digital can accomplish.

The conservatism of infrastructure owner operators is reflected in this breakdown by the Ceos of the deliverables their clients prioritize today.

Digital helps in generating more value by moving to the right.

So now how much change has finally expected by the Ceos as to their clients priorities within three years.

Going digital is a relatively urgent necessity for their firms to remain competitive.

Here are the most common digital investments reported is underway and their firms by the Ceos, including the comparison to last year's survey.

I highlight the greater emphasis over just the past year and the prerequisites for infrastructure digital twins investments in drone surveying capabilities and in datasets to train machine learning for our proprietary analytics. These active investments bode well for us.

And as to the theoretical ROI ongoing digital to even greater extremes I find it very interesting that only 38% of the Ceos say that they would not invest in a putative digital E E C disruptor.

And here are the most common digital offerings that the Ceos consider that their firms already can offer.

Although I find this assessment of their current readiness a bit optimistic.

And I note the significant increases over the past year and offerings that our I twin platform cloud services can better expedite and institutionalize, helping these engineering firms evolve towards becoming digital integrators for owner operators. This is a key part of our strategy to improve the.

Engineering firms business models, while also helping us to extend digital twin advancements to all infrastructure owners.

Finally as to their galvanizing priority consider the E E C E O S consensus as to the proportion of their firms market value that they expected the attributable to their success and going digital.

10% so far.

20% in three years, 36% and 10 years.

And in the next generation a majority of their firms market value.

So that's the range of views from the Ceos office in a typical <unk> hundred 65 accounts.

I think their aspirations tolerably correspond to Bentley systems own priorities and advancements.

But their firms tend to be managed at the next level.

Fairly staunch adherence to the status quo.

With going digital having been more deliberate than urgent.

That's the challenge for our enterprise success teams led by our Chief success Officer, Catriona Lloyd 11th.

And introducing new digital workflows within <unk> hundred 65 accounts, we need to operate at a level sufficiently strategic to respond to and Discernably help towards these C suite aspirations, but at the same time, we need to operationalize and organize our success for us.

To communicate the potential down the ranks and to steadily advance and practical steps with palpable benefits that pay off each quarter.

Nicholas.

After covering your operational perspectives on the tone of business across regions and brands would you. Please introduce cat to tell us what it is that's demonstrably working and why and how ideally in ways, we can measure and counting institutionalized for <unk> hundred 65 success.

Thank you Greg.

Let me provide an operational perspective and add some color commentary starting with regions.

You already mentioned the most notable definitely in Q3, so clear acceleration of our growth in North America.

We tend not to talk about North America as it has become as reliable as it is large.

Presents about half of our business and half of our new business. So its direction correlates with Bentley overall.

But in Q3 the region achieved strong performance across all sectors in particular, those that are poised to benefit from incremental funding.

Our accounts are busier than ever they are constrained only by the available talent that they have.

The word balance that Greg just to describe that performance across sectors suppliers across regions as well in.

In every region market conditions remain positive for infrastructure engineering software.

India Southeast Asia, and Middle East continue to stand out.

Europe is trending favorably overall growth picked up in northern Europe remained steady in central Europe with Southern Europe lagging this quarter.

In China Lockdown restrictions against Covid continue to weight on the economy.

President XI Jinping calls for an all out effort to boost infrastructure back in July .

And we expect funds to be released following the Communist Party Congress in October .

For all of the regions Q3 was business as usual.

In Q3, we announced a strategic alliance with <unk>, a leader in Civil Engineering software in Japan.

Civil infrastructure projects are substantial and critical in Japan, given the terrain and seismic risk.

The Japanese government's I construction mandate is to accelerate going digital and infrastructure engineering and project delivery.

Unique opportunity is a combination of global software with domestic leadership for the needed localization and underground distribution.

<unk> as adapted open roads for Japanese requirements.

Following the same playbook, we used successfully in China.

<unk> will leverage our <unk> platform.

For a new digital twin solutions in Japan as another strong example of our ecosystem approach to <unk>.

Switching to products open.

Open rules in August you'll entering products performed very well in Q3 in North America and India in particular.

Our growth remains strong with a structural analysis products in particular sad and such in energy production, including offshore wind platforms in pnas inspired us with <unk>.

And product managers to do.

Of course, Mike has jumped in here with both feet and will be participating in our product keynote at our year in infrastructure event in London, where I am now next week.

Of particular interest to investors as.

As a proxy for the pace of adoption of digital twins and infrastructure Engineering, We report each year on the proportion of going Digital award finalists and there are 36, presenting here next week selected by independent jewelry, and 12 categories, who credit digital twin advancements and their project Playbooks.

In each case of context capture for reality modeling generally from drone video.

St grow four D construction modeling.

And our I twin platform cloud service, there is steady progress, but still mostly upside and the digital twin potential even among the best projects.

You will have the chance to meet firsthand not only Mike Campbell, but also these finalist if you can make it to London next Tuesday November 15th.

Our keynote sessions will be live streamed for all but investors and analysts are invited to attend in person for our concierge experience of the event and.

And for an interactive lunch with many of our management and board members.

Our colleague Simon Horsley, who retired after more than 25 years at P. S Y most recently as our UK regional executive and who now helps part time with Investor Relations and Europe will be your host.

I look forward to seeing many of you there.

I will conclude my report of corporate developments with a non development on the corporate front regarding insider ownership.

Our S. One prospectus back in 2020 contained this table detailing the Bentley family majority economic ownership at the time.

I think the long term orientation assured by this economic alignment between ownership and management is to the advantage of all of us as shareholders.

So what concerns me too have heard recently from investors new to P. S Y their impression for instance, based on this Bloomberg page that our insider holdings are only on the order of the 22% shown.

On one hand that might make our controlled entity status and dual share structure seem egregious from a governance standpoint, if it were the whole story.

But in the worst case of perceptions it might even seem to imply that the bentleys have sold large quantities of D. S Y shares since the company became publicly traded.

So we will add this further explanation of ongoing beneficial ownership to our next proxy statement to be updated regularly.

While the brothers do own only 22% personally.

As a result of years of estate planning our immediate families own a further 37% for a total of Bentley family economic ownership interest of 59% presently.

That consists of a rather similar number of shares is in the S. One so it's a lower ownership percentage, mainly because the company has issued new primary shares in our capital market offerings and in some acquisitions.

That is not to say that family members won't go about some diversification, but that has been relatively immaterial.

And you will now see such regular sales as reported in this recent form four for me under pre filed plans by those of US receiving long scheduled distributions from the company's deferred compensation plan.

That's because of the company's policy change earlier this year to no longer issue shares net of tax obligations that were historically paid by the company.

Recipients like knee now receive the gross total of shares on which we are obliged to pay our own taxes, necessitating such sales for cash to do so.

I will now hand over to David Hollister to cover as usual the quarter's Bentley investments developments.

David will also as usual introduce Werner to review, our twenty-two Q3 numbers and then after a gardener and I will be back for your questions. Thanks.

Thank you Greg.

I'll first give a rundown on Iceland ventures activities and developments, then I will update on the performance and opportunities and our acceleration group and in particular, our grid integration solutions.

And I'll close out with a few comments on acquisition activities.

We're now nearing the two year Mark of having launched our <unk> ventures corporate venture capital Fund, which we formed to stimulate entrepreneurial ism in developing digital twin applications, including those leveraging our <unk> platform capabilities.

In addition to investing in more traditional early and growth stage businesses, which I'll discuss in a moment.

An element of our charter and focus is defined and fund very early stage ventures, even seed and precede businesses, where we can more readily influenced technology platform decisions.

And comprehensively introduce lightweight technologies building on the success of our initial ecosystem sponsorship program. We're now introducing our <unk> activator program.

With the ICU and activate program, we've recruited a sponsor a sector or domain specific group of early stage businesses into a cohort and infuse intensive Bentley expertise and resources as well as funding in the form of safe notes.

That funding stage upon achieving development milestones toward solutions addressing very real infrastructure engineering challenges.

Our first cohort as a group of transformative startup organizations focused on addressing compelling utility grid issues.

These will include remote capture and modeling of physical grid assets as well as analytics and forecasting to enable planning and interconnection of distributed energy resources and electric vehicle charging stations for use by our open utility solutions among others.

The expected outcome from these cohorts is a more integrated timely and relevant solution to engineering challenges endorsed and supported by better systems.

And of course, leveraging <unk> solutions, and <unk> platform technologies as well as go to market synergies with billing systems.

We will have more discussion about ICU and activate program next week at our year in infrastructure Conference. We're excited about this program adversity lots of opportunity to run cohorts for example around infrastructure Iot transportation and mobility and mining just to choose a few that are on our radar.

Since I last presented our ICU adventures portfolio, we've added some additional portfolio investments, including <unk>, which is the result of US having contributed our street with X traffic stimulation data business <unk>.

As well as a new portfolio invest the overstory, which contributes to grid infrastructure operations by applying AI and machine learning to satellite imagery for a real time vegetation encroachment management solution.

Of course, our <unk> investments team is also focused on our acquisition and acceleration of activities with the latter including the incubation of new opportunities.

Such as our joint venture strategies in China, where our first JV will launch the island collaboration solution at the end of this year and where we then expect its revenues and our economics to begin accumulating starting in early 2023.

We also expect to formalize our next China joint venture focused on engineering applications by the end of this year and I plan to discuss that when we next week.

I'd also like to comment on the performance and opportunities in our grid integration group, which notably includes our recent acquisitions of power lines systems and Spider.

Performance continues to exceed our expectations, which you may recall, we previously disclosed was a business with growth rates and margin performance each at least twice that of battery systems.

I hear reaffirm that to be the case, thus far.

Short of providing any specific guidance, which we only do once a year and which will not be granular as to product sector or geography, I do offer the anecdotal outlook that I see no change to our grid solutions trajectory and performance.

Ported largely by current strength and momentum in a receptive macro environment with consensus mandates for grid hardening and expansion energy security in transition and the corresponding public funding in support of it although the delays in permitting reform are still impediments.

Lastly, just a comment on acquisitions.

While the platform power line systems acquisition earlier. This year is meeting the closure rate on programmatic acquisitions. This year is clearly down.

The pipelines there and we're actively working many opportunities.

Our programmatic acquisition appetite and strategy have not changed but our discipline in this macro just having combined to bring the velocity we've historically seen.

While we stick to our historically successful programmatic strategy. We've worked diligently on the comprehensive integrations of a large number of programmatic acquisitions over the last two years.

And as mentioned, we have delivered everything we expected and more from our sequent empower line systems platform acquisitions.

The brief respite in closed programmatic acquisitions as also enabled us to take a bite out of leverage which isn't a bad consolation prize.

And I know Werner will have more to say on liquidity and leverage when he discusses our financial performance. So I'll now hand, it over to him.

Thank you David.

We are pleased to report that our operating performance continues to reliably progress towards our full year financial outlook.

Subject to foreign currency effects from the strengthening U S dollar, which we started to discuss and quantify last quarter.

<unk> continued to impact our as reported operating results.

Exchange rates.

Total revenues for the third quarter, that's $168 million and grew 7% year over year or 15% on a constant currency basis.

On a constant currency basis, <unk> Q3 revenues.

What percentage of Americas, 14, EMEA and 23% in APAC.

Year to date total revenues grew 17% or 23% on a constant currency basis.

Almost all of our revenue growth comes from subscriptions, representing 88% of oxo into revenues during 2023 and on a constant currency basis growing by approximately 18% year over year.

This growth is supported by our business performance.

And Nicholas described this balance across sectors and regions and our platform acquisition of polymer systems in January 2022.

Our year to date 22 constant currency subscription revenue.

27% reflects the incremental impact from our platform acquisition of CCAR each of 2021.

The growth of our <unk> hundred 65 program, and especially consumption growth that in our efficiency project comps as well as the continued its growth momentum virtuosity subscriptions remained solid concrete users so our business performance.

Regarding our perpetual licenses and services revenues that has been all material change in absolute amounts.

Additionally, these cost trends, which are reflective of our focus on recurring subscription revenues.

Our next cover other constant currency metrics.

Our account retention rate is not rounding up to 99% and on a constant currency recurring revenues net retention rates, which is a key measure of our success in growing recurring revenues within our existing accounts increased to 110% led by continued accretion in our <unk> hundred 65 consumption based commercial model.

Our constant currency growth rate remains at 14% year over year, which is the combination of the letter.

From a business performance and two 5% from the Onboarding Pls in 'twenty to Q1, Greg.

Greg already discussed intrinsic seasonal aspects impacting our era the.

The impact of our exit from Russia.

So stated contract cancellations in China and credits and lower contributions from programmatic acquisitions year to date 2000 clients.

Considering these factors.

Nominally stable year over year constant currency.

Business performance was 11, 5% seems still reflect an uptick in total our business fundamentals and gives us sufficient confidence that folks wanted to keep for to maintain the range of our full year constant currency.

Look.

So in constant currency, our business remains robust, even therefore exited Russia.

Moving on now to actual currencies.

Over the last 12 months recurring revenues at actual currencies increased by 20% year over year, representing 88% of total revenues.

Our platform acquisition of secret oncology <unk> and.

Post acquisition costs contributed about 14 percentage points of this improvement.

The continued strengthening of the U S. Dollar resulted in significant currency headwinds, reducing GAAP revenues at actual currencies.

Relatively to the foreign exchange rates assumed in our 2002 and financial outlook FX headwinds lowered our GAAP revenues for the quarter by approximately $50 million.

So further quantify the impact of the U S from a strengthening in our annual financial outlook.

At current exchange rates prevail throughout the remainder of the year, our full year GAAP revenues will be negatively impacted.

The $40 million.

Relative to the revenues based on the exchange rates in effect when we determined our full year outlook at the beginning of this year.

Our GAAP operating income was $55 5 million or 22, 50, and $167 9 million for the mutual day 2020 tool the.

The comparative period of 'twenty, one Q3 end of 'twenty, one to three year to date.

Select and approximately 91 million, one time accounting charge related to the re characterization of the portion of our nonqualified deferred compensation plan from an equity stake of the arrangement.

Actual cash separately arrangement.

Related to last year's narrow enveloped in queue for a more detailed discussion of the accounting for this metal.

Our GAAP operating results reflect charter spike decision related costs, notably for Pls in the first half of 2022 and four secret into first half of 2021.

And then going into 2022 incremental amortization from purchase intangibles from these acquisitions and incremental noncash stock based compensation, partially offset by mark to market valuation gains from the revaluation of our compensation framework.

As to stock based compensation the increase charges reflect the accounting for our post IPO changed who maybe at <unk> use in place of stock options you have pre IPO awards.

Both assortment of our top executives at a much higher proportion of compensation paid in stock than pre IPO.

Well closely monitor stock based compensation for many of our solution.

Our very favorable comparison to peers and the economic proportion of stock based compensation is purposeful and permanent.

On the right our protocol for adjusted EBITDA grew by approximately 6% over 2001 tier three and our year to date adjusted EBITDA of $273 9 million is an improvement of approximately 16%.

Our equally had adjusted EBITDA margins 33, 7%.

We remain on track.

There are only 3% adjusted EBITDA margin target for 2022.

And while our adjusted EBITDA in absolute terms is of course impacted by currency movements.

Exiting.

Marching partners remained significantly mitigated give him a natural hedge.

This has become more effective with the inclusion of <unk>, whose invoices are primarily denominated in U S dollars.

With regards to liquidity.

Our third quarter, GAAP operating cash flow improved 19% year over year and.

And year to date.

For an 8% compared to 2021.

Our year to date operating cash flow of $238 million, representing cash conversion ratio of Omnichannel EBITDA of 87%.

He came up with the <unk> acquisition related expenses of $13 million.

Our last 12 months operating cash flow of 319 million represented cash conversion ratio from last 12 months' adjusted EBITDA of 88% after payment of acquisition related expenses of $14 million.

During the first three quarters of 2020, we spent approximately $42 million of defects per share repurchases associated with stock based compensation, serving to offset the dilution from such compensation.

As we discussed earlier this year, we significantly reduced subsidy extra share repurchases starting in the second quarter and in Q2 announced the stock repurchase program, which enables us to consider market conditions and flexibility re prioritized exemplification of our cash generation F 16 programmatic acquisitions.

Leveraging and stock repurchases to offset ongoing dilution from equity compensation.

During the second and third quarter via repurchased one 8 million of our stock under this program with $15 million of these repurchases during Q.

Q3.

As of the end of September our netback CE lever actual smartphone three times down from the one French experience.

The end of December last year, which I presented during our year end 2021 operating results on a pro forma basis to reflect the financing of the acquisition of Pls.

When including our 2026 27 convertible notes this debt our net debt leverage was four seven times.

At the end of September .

And as of the end of September approximately 80% of all of that is protected from rising interest rates for either very low fixed coupon interest on our convertible notes.

Our 200 million interest rate swap expire in 2000.

I'll remind you of our upcoming Investor conferences, where members of the management team will present.

That shape the market digital statement industrial design.

Domestic international Investor Conference at the <unk> European Conference and then back to your questions.

Thank you as a friendly reminder, please on mute your microphone and turn on your camera when called on a limit yourself to one question and one follow up in the interest of time, we'll start with Matthew Broome from Brazil method.

Yes.

Hi, Hi, sorry can you hear me.

Okay perfect.

So.

You provided.

Constant currency growth rate for a.

But what was the incremental FX headwind to <unk>.

During the quarter.

Otherwise it would be useful to know how much.

<unk> increased by <unk> as the second quarter on a net basis when excluding the incremental impact from FX changes over the last three months.

I'm going to let you try that but what I think is that.

It's too complicated to do every quarter.

Morrison of actual for constant currency.

For <unk>.

So what we what we did calculate.

Okay.

It is.

That you ended up absorbing Jim a RR I think it began in FY 'twenty and carried into FY 'twenty. One can you just quantify what that headwind ended up being and then when you think about a go forward basis, and I would imagine you're getting visibility from customers on there.

Capex intentions and that informs what Kim assumption, Mike Mike.

I can do.

Is 2023 year by conceivable time frame for it.

The magnitude of headwinds you have absorbed coming back and actually becoming tailwind on <unk> performance.

For Pcs I think yes.

The magnitude of the Pcs.

<unk>.

Subsidence was about 20% I think at the maximum.

So they continue to do 80% of their business with us, but otherwise they had.

Frankly laid off 20% of their of their people.

It's not back nearly 2% to 100% yet.

However, I would say they are optimistic and by virtue of having changed up their business mix to do more with energy transition and energy.

Security.

They would hope so about 23 I think.

Great. Thank you very much.

Next we'll go to Matt Hedberg from RBC.

Okay.

Hey, Good morning, guys can you hear me okay, yes.

Excellent.

Greg I wanted to ask you it's great to hear the continued success of virtual <unk> 600, new logos were impressive.

And I think as you alluded to this segment is sort of just taken off can you provide a bit more detail on thinking longer term with this new growth engine into really an untapped market how material can speak to sort of that long term <unk> growth algorithm.

Well.

I don't think we get our share yet.

The enel.

Analysis, we did with Cam bashing suggested that.

More than 40% of.

Infrastructure engineers work in these smaller firms.

We are.

On a path to.

Make that our share of.

New business in IRR in a few years perhaps.

It certainly is worth.

Our major investment now in what we call our digital experience platform to what we are.

Mainly spending our discretionary.

<unk> now on and hiring for.

But it is <unk>.

Years ahead, I would say, it's comparable to as long as it will take us to.

Reached everyone with <unk> hundred 65, among the enterprise accounts it'll take that long to.

To be done.

Growing share if I put it that way before we get to growing with the market in SMB.

Got it and then I don't know if Nicholas was on he May have mentioned I think he was talking about kind of the global <unk>.

And environment, but I wanted to maybe just double click a little bit more on Europe , I think Europe results were impressive sort of globally, but maybe just a little bit more color on sort of like how the various regions of Europe are doing how they're holding up and just sort of the confidence into.

The last three months there yes.

Yes, I am filling in for Nicolas here as he is on.

The case of our year and infrastructure for next week.

The we've really had in Europe under the magnifying glass as we said each.

Each quarter this year and the first quarter. It was as I recall central Europe brought up the rear.

Last quarter was northern Europe , largely in the U K, where I am now in which caught up fine in the second quarter and the third quarter. It was southern Europe , and ni and Theyre growing but not comparable to last year, which it must be said with strong growth over the year before.

So.

I think thats the matter of paying more attention to Europe . It is it is however behind.

North America and and.

You saw that Asia is quite leading the way.

Most significantly there is India.

And.

India, we've rarely seen such new business growth answer there and I think it's two different phenomena.

On the one hand, there is a strong infrastructure investment program in India and most of it is probably domestic but.

India is the one place in the World, where there is not a shortage of.

Civil and structural and geotechnical engineers and I think more of the work in the World is moving to global design centers in India at the same time.

And then North America is a bit better in Europe brings up the rear but is would be in light green at least.

And can get better.

Thanks for the color guys.

Thanks next we will go to Kristen Owen from Oppenheimer Christopher.

Hi, Good morning, everyone can you hear me, Okay, yes, great.

Great.

So you you talked about this sort of divergence between what we're seeing in the overall macro indicators and then what your customers are seeing in terms of their backlog I wanted to ask a question in the context of your <unk> hundred 65 sort of Onboarding process.

Given that backlog and that disconnect is there an opportunity for you to accelerate invitation to <unk> hundred 65, what would need to be in place in order for you to move faster as it were in that area.

Christian we're onboarding more accounts into <unk> hundred 65, each quarter.

It looked like more dollars because we started with the largest accounts and we're down now in the middle of the field among the enterprise accounts, but we have a natural constraint which is the.

Supply of the quantity and quality of the people cat talked about who are doing the onboarding.

We are setting up the quarterly business reviews. We have these 500 blueprints that we ration and so forth, we don't want to dilute that.

The quality of that and especially we don't want to chisel. Among the accounts that are already expecting their enterprise success teams to continue doing this good job in delivering the accretion for us in the additional.

Engineering capacity for the for the accounts, so were sort of constrained that way.

But it must be said.

Our.

You say that there is very little left of our of our original pass program and generally are our invitations are enthusiastically accepted by the accounts as we work down the list for <unk> hundred 65.

Okay.

And then I wanted to maybe double click on some of the trends that youre seeing in resources and ask if you could provide some additional color there is that mostly.

Are you seeing growth in resources in any one particular area or what's sort of driving the strength in that business. Thank you.

Mining is a great portion of that.

And mining is all dark green.

Every measure of.

Of mining.

Hum.

New business is.

Up and strong.

I say that knowing that it's.

It's going to be cyclical ultimately, but.

And it seems we have a lot of electrification.

Mineral requirements before that comes about and then.

Also in renewables we have.

Upstream.

Oil and gas, which which has new pressures and of course.

Renewables and offshore activity now is just as often or more.

Floating and fixed wind platforms.

Where were really important to the world.

And so resources is setting.

Setting a new standard we haven't seen anything be as strong as it continues to be and I think sustainably can remain.

Thank you.

Next we'll go to Gulf Linda.

Yeah.

Alright. Thank you for taking my questions. The first one is just a follow up on the EBIT of 65 as well do you have you Greg I'm going to ask you what is the potential when you look at our split with today. When you look between the U S business and across the world.

Specifically and maybe even within the U S.

I think we came across the fact that you are starting to introduce more of a consumption model even in the east.

Structure.

So this isn't limited to just your.

Your.

Commercial lines can you talk about that.

Okay.

While we do like.

As I say sharing this consumption risk with our accounts in the case of the government accounts. We have recently invented a variation of <unk> hundred 65.

We call it internally EPS $3 65.

Public service.

Which has banded the government accounts have difficulty changing their.

Purchase orders during the year, but they.

Except that we all have the right incentives if.

If we want them to use more.

Because they want to use more as well and pay for that so that gets kicked up when they hit a growth in AR.

In a band.

I might say that this is the quarter. When we were first introducing <unk> hundred 65 in China, but it works that way also it's a banded.

Notion we've learned in China that certain adaptations to commercial models are.

So it's a.

I feel like it's a temporary cap and floor until the.

Usage goes through one way or or the other.

And that will.

The remainder of the enterprise accounts, we'll.

Take advantage of a lot of that.

And that patient, we've learned and how you do.

How you do consumption based business in a practical way for each type of account.

That's perfect. Thank you and then just wanted to focus on the on the resource business as well and thinking about like you said.

When it.

You know what.

When you when you became public you obviously had a big.

From the EPC is especially on the oil and gas side, but now thinking about the sequence of the mix and kind of diversifying the whole risk averse.

You know what is the outlook, if you kind of dig deeper, especially because of the fact that the traditional.

Traditional energy business is also having a better outlook from.

From oil prices, where they are and also having.

Some sort of a capex there was expected to come over the next year or two.

How do you kind of.

Colin can you.

Whereas the duals I guess.

And that mix don't forget pls and the exposure to energy.

Transmission and distribution.

The bottleneck for all of the rest of it if you spend more on energy transition and spend more on.

Renewable sources it doesn't help unless there is more and more reliable energy capacity, which is why David Hollister.

Call that out but.

In our favor and not only is the are the tailwind you you mentioned in the recent in the sectors, we've already been in but our deliberate platform acquisitions.

And in these fast growing sectors, David do you want to add anything on Pls.

No nothing we haven't already talked about.

Perfect. Thank you so much.

Yes.

Great. Thanks next well go to Andrew for Robert Andrew.

And it might be on Batesville.

Can you hear me now yes.

Okay.

Thanks for taking my question I guess first Greg I wanted to maybe talk about your comments earlier.

In particular, how you were surprised pleasantly surprised about the strength in the commercial facility side as well as the SMB.

Element of the business. So I just wanted to understand if you were a pleasant surprise because the macro environment is kind of negative for those areas or was it more of that internally you executed better.

Than what you originally planned.

My two surprises were that commercial facilities continues to grow in new business. When I would have thought that the world has an oversupply of commercial facilities with respect to utilization of.

Office and institutional spaces and so forth.

And every quarter I say that in every quarter I'm wrong about.

The direction there, it's not strong new business growth, but it is new business growth in the case of SMB. While continues to surprise me is over 600, new logos for virtuosity in the quarter, because I would've thought there wouldn't be another 600 left let alone that we would land them all in the same quarter.

So theyre just turns out to be that we don't know the SMB space.

Space.

As as well as we should and will continue to focus on them.

That's helpful and then maybe David Rota.

On the programmatic acquisition front.

EBIT flagged there was slowing a bit.

I guess, maybe first of all would you say, it's flowing from our perspective.

A valuation point of view or is it your own.

Sort of appetite for risk at this stage and then maybe how does that relate to the contribution to <unk> for next year.

This pace.

Pragmatic acquisitions continue at this rate.

So Andrew I would just say that we are.

Looking at any fewer.

Opportunities this year than we always do we always have a full pipeline, which frankly includes lots of opportunities for businesses that arent for sale, we're constantly building those.

Relationships.

And working them towards a potential transaction.

What has slowed as just the.

Our our discipline about valuation.

We have reframed our.

Views on valuation just given the macro.

<unk>.

A lot of it is just.

Chance, it's I mean, it's.

It's pretty it's pretty volatile.

We hit on a lot of them as you saw in 2021 and 2020 for that matter.

There have been a couple this year, which followed the traditional pattern and there have been.

Many many this year that full of lots of lots of reasons.

Debt that we can't do anything about it didn't come to closure, but again, what I would like to emphasize is that there are opportunities out there.

We are we are reasonable about valuation.

And.

I expect that we'll continue.

To have programmatic acquisitions as part of our strategy.

Both in terms of growth, but importantly, as in terms of building on our solution portfolio.

And our.

Behead submission.

Spanning that load.

And I will add to that is it from my standpoint capital allocation doesn't put any pressure on that we would be glad and prefer to be continuing the usual programmatic acquisition activity.

Okay.

So.

Patients Andrew two to.

Growth in an outlook. If you will for next year I would again like to emphasize that our programmatic acquisitions in the main are.

Very small tuck ins.

We're not buying revenue, we're buying tech and talent and we're expanding our solution portfolio. So.

Again there.

It's a one 5% impact on our growth rate historically.

I would expect that to continue.

Great. Thank you everyone.

Excellent try Michael Funk from Bank of America Michael.

Okay.

Yeah.

Michael are you there hey, guys can you hear me, yes, yes fair enough.

Yeah, Hi, guys. Good morning, Thank you for the.

The question with a couple if I could just go back to.

One of the earlier questions I think somebody asked about the quarter over quarter.

Constant currency growth I think you responded, but it's a complicated metric to provide just wanted to know is it.

You don't have the data.

Or have you not.

Have you not run that data, yet I'm trying to better understand.

Mike will provide in the future.

So.

Thanks, Michael.

Yes, yes.

So what we provide is.

At constant currency.

Growth rate.

And what we disclose as well.

Actual currency.

Every quarter you see it in the Q is it in the presentation today.

It's probably fair to say that our ADR growth and the FX impact.

Correlates with the FX impact that we see from our subscription.

Subscription revenues.

Which is a significant contributor to us once they are.

Uh huh.

FX impact that we had this year was that script transform the beginning of the year.

Ultimately, 4% headwind.

On a constant currency basis, if we compare like revenues in prior periods.

The 6%.

Edwin.

But I think if you work it out it's a stock versus a flow at the end of the quarter as opposed to the average rate during the quarter. So.

Those are the complications but for ourselves we worked it out when we did the calculation that.

We're at 70% so far after three quarters of the mid range of the full years.

Constant currency <unk> growth rate over the beginning of the year.

Alright with covenants.

Yes I'd.

I'd have to scratch, our head to figure out how does that include our guy So I figured I'd try to figure it out and you guys can do.

You guys can work it out and then just on on pricing.

You mentioned the press release that you are largely hedged.

The FX moves presumably based on expenses, but can you just remind me.

Where are you price in dollars versus local currency.

Normally we price in local currency. So our hedge would consist of our people being distributed all over the world where the.

Where the revenues are.

However, and that would leave us with a a because of our margins.

With.

With an excess of dollar revenues.

Uh huh.

But sequent turns out to be the exception to that sequence bills.

In U S dollars everywhere, but incurs all of their costs outside U S dollars because they are in New Zealand and Canada and elsewhere in the world. So that tends to serve to rebalance in our favor that natural hedge.

Understood and maybe one more quick one if I kind of know we're running towards that time here, but just on pricing.

And your philosophy around price increases I think historically, you said kind of annually and pretty consistent price increases are you reevaluating that policy and in the current environment, while we're pretty resilient against inflation in the following respect theres a lag though so.

We have annual escalation in our subscriptions almost all of our subscriptions are billed and paid annually.

The our history is.

We say a software developer price index. If you like that's my way of putting it in and it's not an across the board escalation. It differs by country and by product by defense averaged say, 3% to 4% in.

In recent years this year it'll be a couple of percent higher than that but it rolls in in the following way we work it out in the first quarter of every year. It takes effect during the second quarter immediately for our quarterly and monthly term licenses, but for all the others. It's the annual renewals when they have reached at the end.

The second or third or fourth quarter. So most of that lies ahead of us for the escalation adjustment.

We're in it of which we are in the cycle now so we.

Okay.

Price escalator Greg.

Fixed price with butter in the contract.

All right.

The contract simply allows us to set escalation every year, we don't set it across the board or even by country, it's by individual product.

In each country.

Just tends to have a tendency to be about if you like a price index and I'm, calling that a software developer price index, because we're not we're not tied to a particular.

Macro price index.

Okay, Hey, Thank you guys. So much for the time I really appreciate it.

Thanks, and with other parties, where now our time, so we'll end the call here.

Thanks for your time, everybody and we'll see you next quarter.

Okay.

Okay.

The recording has stopped.