And then we want to come to market primarily through ecosystem partners so either our maintenance organizations or engineering firms or the types of partner that Michael mentioned. So, the whole thing is how can you get into this opportunity now, because owners are aware and interested now. The term AI has aroused them to say there probably is something that can — for me to start with — right now to start with, and that’s the difference.
Jay Vleeschhouwer: Thank you.
Eric Boyer: Thanks, Jay. Next question comes from Matt Martino from Goldman Sachs.
Matt Martino: Yes. Good morning. Thanks for taking the questions. So Greg, you called out a potential displacement when — in SMB from perpetual license, which I believe has been kind of a multi-quarter trend here now. So can you perhaps talk about what’s kind of driving this proclivity towards licenses and SMB and the extent to which this is benefiting broader SMB momentum and competitive takeouts? Thank you.
Greg Bentley: Well, Matt, it’s really interesting. Our license sales went down year after year after year determinably because, of course we refer subscriptions. It’s clear why in China, if they’re worried about Americans being able to continue to do business with them, they prefer to buy a perpetual license now, and Nicholas saw that for himself first hand in December. But over an SMB, we all scratch our heads a bit, why would you prefer a perpetual license? As you know, our competitor doesn’t offer a perpetual license. So that’s the reason to call the competitive differentiator. And the anecdotally, what we hear from those who, then it’s 400 of them, new logo license purchases SMB in this quarter, and they say, the sun is shining.
Our business is good. We’d rather buy our software now and be able to continue to use it for multiple years. And we say that’s a different way of looking at the way you would trade off discounted cash flow and so forth, if you’re a sophisticated large business. But let’s not dictate to them how they should look at their choice of acquiring technology, let’s get on with it. So, it’s a good opportunity for us. It’s not large in the scale of our overall ARR, but we hope to continue to grow these new logos forever into our conventional enterprise programs.
Eric Boyer: Thanks, Matt. Next question comes from Joshua Tilton from Wolfe Research.
Joshua Tilton: Hey, guys. Can hear me?
Greg Bentley: Yes.
Joshua Tilton: I just kind of have a bit of a high-level one. But I guess if I step back, it sounds like you guys are focusing more on new logos, you expect less contribution from M&A than you have previously. You called out a strategic realignment and there’s a bigger focus on perpetual. So what I’m just trying to understand is there like bigger changes in strategy going on under the hood? Or am I just reading too deeply into the commentary that you guys gave us today?
Greg Bentley: No I think it’s stay the course on what is working very well. We concluded the year with our ARR growth at which we particularly chase and measure at our all-time high watermark except for China where we’re purposely changing the business for the reasons we just mentioned. It’s just that we’d be glad to grow faster with these AI opportunities and the digital twin opportunity has been hanging around NanoAI gives us this entry point. And back on SMB, we just become more convinced every year that we have been — we’ve neglected that potential in the market and we’re very excited about that now. Just our overall strategy Josh as we commit to improving our operating margins including stock-based compensation by 100 basis points per year.
But subject to that we want to grow ARR as fast as we can. And the ideas you just mentioned are all timely and ones we can act upon during this coming year. In M&A you see that we only spent $38 million last year including DC investments. We are going to focus in particular this year on opportunities in asset analytics. We may not find them. We hope we do. If we do we want to do right acquisitions like Blyncsy. Blyncsy was an opportunity that came to us as a potential VC investment. And we want to incorporate and consolidate those and have this platform advantage and be the back-office provider of the AI and reality modeling processing at scale. Because we think it’s difficult otherwise for organizations that have good proprietary analytic capabilities, but don’t have the resources to provide an experience back office and we’re going to get very good at that.
So I know I’m bubbling over with what’s new and exciting and interesting, but it’s not a substitute for what’s growing better than ever in the mainstream business.
Josh Tilton: Super helpful. Thanks, guys.
Eric Boyer: Thanks. Next question comes from Blair Abernethy from Rosenblatt.
Blair Abernethy: Thanks. Just turn on
Greg Bentley: We can hear you Blair.
Blair Abernethy: Okay. Great. Sorry trying get the video on. Thanks for doing this. The — just back on the IIJA for a second if we could. Now that we’re sort of 35% of the projects sort of announced is there any — what sort of trends are you seeing in terms of what the DOTs are doing? Are they — are they standardizing on their software? Are they going project by project and making the decisions in that way? Just kind of want to get a sense of what the competitive aspects have been looking like now that this has been 1.5 years or so into the process.
Greg Bentley: Well, there — most are standardized in terms of what they use on Bentley software. On the other hand their supply chains are at full capacity and they’re beating the bushes. It’s something to say about the DOTs is they’re spending more state money as well along with the incremental federal money. I think the state money is up 11% year-on-year. And that taxes everyone. And some of the new logo opportunities for us are civil engineering firms that primarily have done site engineering in the past and they are now gravitating toward roadway. All hands are needed on this for the reasons we talked about the demographics and the shortage of users and user days in the US, especially but the — I think the main picture is higher for longer rather than higher. They can’t be in transportation any faster than it is at the moment. Nicholas, do you want to add something to that?
Nicholas Cumins: I would say, DOT is leveraging IIJA to accelerate what they were already embarking on, in particular, digital delivery, so using a model-based approach from design through construction all the way to operations. Now, as you know, there are multiple grant programs. One of them is called Smart, and Smart is to encourage or to help the DOTs pilot new technology. And what we’ve seen with the Smart grants are some DOTs leveraging that fund in order to do drone lead inspection and infrastructure assets. So going back to your asset analytics and the DOTs themselves are leveraging technology to automate inspections.
Greg Bentley: Just overall, when we talk about accelerating and relatively faster, it isn’t necessarily faster than the rest of the world. It isn’t necessarily faster than — these are organizations that are that have a long legacy and lots of enterprise constraints and their own challenges for talent and so forth. But the appetite is greater than ever. 4D construction is one of this year’s big priorities for us and them. So lots going on, but it’s needed.
Blair Abernethy: Great. Thank you.
Greg Bentley: Yes.
Eric Boyer: This will conclude the Q&A portion. Werner, do you want to touch on [indiscernible]?
Werner Andre: Yes. One more comment on ARR seasonality. So, we had our last programmic acquisition with meaningful ARR contribution was EasyPower in 2023 Q1, which — at the end of Q1 will drop into the trailing 12 months baseline. And then, we had a larger portion of our E365 accounts that just had the floor resets in Q4. They will work the way through the floor into the usage area throughout the year. So, we expect Q1 to be at the seasonal low for us in terms of ARR growth and then, we go way up as we go through the year. So, just in terms of ARR seasonality.
Eric Boyer: All right. So, that concludes our call today. We thank each of you for your interest and time in Bentley Systems and look forward to updating you on our progress in coming quarters.
Greg Bentley: Thank you.
Werner Andre: Thank you.
Greg Bentley: Cheers!
