Bentley Systems, Incorporated (NASDAQ:BSY) Q4 2023 Earnings Call Transcript
Bentley Systems, Incorporated (NASDAQ:BSY) Q4 2023 Earnings Call Transcript February 27, 2024
Bentley Systems, Incorporated beats earnings expectations. Reported EPS is $0.2, expectations were $0.19. Bentley Systems, Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Eric Boyer: Good morning and thank you for joining Bentley Systems' Q4 2023 Results and 2024 Outlook Webcast. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Chief Executive Officer, Greg Bentley; Chief Operating Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of February 27th, 2024, regarding the future results of operations and financial position business strategy and plans and objectives for future operations of Bentley Systems Inc. All such statements made in or contained during this webcast, other than statements of historical fact, are forward-looking statements. This webcast will be available for replay on Bentley Systems Investor Relations website at investors.bentley.com on February 27th, 2024. After our presentation, we will conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.
Greg Bentley: Good morning and as always thanks to each of you for your continued interest and investments in BSY. I will start by relating the directions reflected in our 2023 results to our consistent expectations for 2024 and then some developing aspects, which also have a bearing on our outlook. Nicholas will cover operational highlights of the quarter, including soundings of the current tone of business on every front, and Werner will review financial details for both years, all the way through cash generation and its planned allocation. Most significantly, I must emphasize our overall satisfaction with Q4 and the full year 2023. In keeping with this, Nicholas and his operating teams are to be enthusiastically congratulated for performance, which while surpassing our established annual hurdle of 100 basis points improvement in operating margin including stock-based compensation, earned 100% of their new business-based incentive pool.
Although this entailed resourceful rebalancing after new mining investment unexpectedly slowed down in midyear, we have ended the year with historically high momentum in our fundamental ARR growth. A quarter ago a key question about ARR growth for 2023 Q4 was the degree to which accelerating progress in transitioning our China commercial model to be less directly subscription-oriented could perversely offset overall ARR growth. Otherwise, always our best performance gauge across the remaining 97% of our world. Indeed China, which previously was an ARR growth contributor, has been the significant detractor from our ARR growth as shown here ever since sanctions on Russia coincided with geopolitical apprehension about American software subscriptions for Chinese state-owned infrastructure enterprises.
In 2023 Q4, our purposeful structural changes in China did seem to be making progress. When Chinese developed products of our first joint venture cannibalized project-wise installations, we lose ARR in exchange for approximately equivalent one-time net proceeds of the license sale for our underlying platform. But with no American stigma, hopefully, volume expands so that we can come out ahead. In fact, we concluded 2023 by growing our revenues in China for the year by 3% as such licenses more than offset the inevitable decline 7% in China ARR. To quantify the increasing impact on ARR of this intentional China market change, our overall ARR year-over-year growth rate of 12.5% is increasingly diverging from our high of 13.5% in the quarter for the world excluding China.
And given the acceleration in our business benefiting the ARR detracting transitions in China, the baseline ARR growth rate for our 2024 outlook must reflect this gap prevailing foreseeable. To further consider how the other directions within our growth momentum exiting 2023 should inform our 2024 financial outlook, let's review in turn each of the underlying factors that we portray notionally in our introductory materials as layers within ARR growth. Starting at the top with new business from new logos, in 2023 Q4 for the fifth straight quarter this accounted for about 3% in ARR growth, led by our SMB initiative and ongoing digital experience investments towards self-service automation. Reinforcing confidence in continued such momentum in 2023 Q4 Virtuoso subscriptions attracted over 700 further new logos for the eighth straight quarter of over 600, in addition to over 400 separate new logo SMB accounts where in 2023 Q4 we achieved what I suspect was a competitive displacement through a perpetual license sale.
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