Good morning, everyone, and thank you for joining us for Bentley Systems' operating results webcast for the Q3 of 2022. I'm Michael Fichette, Bentley's Vice President and Deputy General Counsel. On the webcast today, we have Bentley Systems' Chief Executive Officer, Greg Bentley Chief financial officer, Werner Andre Chief Operating Officer, Nicholas Cummings and Chief Investment Officer, Dave Hollister. Before we begin, let me provide a disclaimer regarding forward looking statements. This webcast, including the question and answer portion of the webcast, may include statements related to the expected future results of our company and are therefore forward looking statements.
Our actual results may differ materially from our projections and our forward looking statements due to a number of risks and uncertainties. These risks and uncertainties are described in our operating results release and other SEC filings. Today's remarks will also include references to Additional information, including a reconciliation of our non GAAP financial information to our GAAP financial information is provided in the press release and supplemental slide presentation. This webcast will be available for replay on Bentley's Investor Relations website at investors. Bentley.com.
After the presentation, we will conclude with Q and A. With that, let me introduce the CEO of Bentley Systems, Greg Bentley.
Hello and thanks as always for your interest in Bentley Systems. Our 'twenty two Q3 operating results presentation will follow our usual sequence that starts with the tone of our business. In the past, I've used the description no drama for That's right. And by contrast to the dramatic impacts of Russia echoed in China during 2022 Q1 and our Absent Russia, and in fact, we had hoped to be back on our annual target, Because throughout 2022 to date the loss of Russia and associated 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 warrant amending our established financial outlook for 2022. This is particularly the case given that what we and I think you consider to be our key operating performance indicator, business performance year over year ARR growth rate is expressed in constant currency 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 Varanir here quantifies, as we did last quarter, the impact of actual 2022 Q3 FX rates being different than the rates assumed at the time of our outlook And cumulatively, assuming current rates remain in effect for the balance of the year. Although adjusted EBITDA dollars are exposed to reported currency FX, 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 currency, Back in constant currency, the 'twenty two Q3 business performance ARR growth rate year over year And again, after absorbing Russia and related China setbacks during the year, remained nominally stable at 11.5%. Which again doesn't include 2.5% of ARR growth from the onboarding of PLS during 'twenty two Q1. But to better understand our 2022 Q3 tone of business, I would like us to look more closely at this year over year business performance ARR growth rate Compared to the same rate in 2022 Q2.
We measure this KPI 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 subscription that would otherwise obscure sequential quarterly trends in ARR growth By always including all 4 calendar quarters to abstract from such seasonality, sequential changes in year over year business performance ARR 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 ARR growth to trend whether up or relatively smoothly rather than a 2021, we see that unusually In 21 Q3, the year over year ARR growth rate jumped from 10% to 13%. In retrospect, this seems to largely reflect pandemic lockdown volatility. But it's also a set compared to our many programmatic acquisitions throughout 2021, This year's have been few and small. While our business performance and our growth in other respects has been comparatively Stronger in 2022 and for the baseline of 2022 Q2's trailing 4 quarters of year over year growth, 'twenty two Q3's year over year progression has to make up for the dropping out of that adverantly high 'twenty one Q3 growth.
Accordingly, although 'twenty two Q3's year over year business performance ARR growth reads nominally the same at 11.5% as 'twenty two Q2, In effect, it's more than comparable, implying an incremental uptick in tone of business, which we also can confirm subjectively. And indeed, adjusting for the earlier Russia and related China onetime ARR losses, business performance ARR is effectively growing year over year At the highest levels we have experienced. A quantitative summary is that this year after 3 quarters and after absorbing the Russia related ARR losses And at the appropriate constant currencies, we have reached cumulatively about 70% of the ARR growth implied by the mid range of our annual outlook. Our 2022 Q3 uptick in new business momentum leads into our seasonally strongest Q4 of renewals And ARR growth opportunities, all considered in light of the risk of more geopolitical Political disruptions such as in 'twenty two Q1, especially in China, as shown here and not including 2.5% from the PLS platform acquisition onboarding, We continue to reaffirm the range of our full year 2022 Once the currency business performance, ARR 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 Investment and Jobs Act. To drill down on the tone of business for U. S. Civil engineering firms, many of us track the Dodge Engineering News Record quarterly survey of trends in their backlog, And here you can see this quarter's further expansion and the current multiple backlog these firms consider ideal. Given this dilemma, their preference is certainly to increase their infrastructure engineering capacity by going digital Rather than to reduce their intake of this business.
Turning now to the latest ACEC quarterly survey of engineering firms not limited to civil, One can see the magnitude of these current backlogs pending around 1 year. Interest expected here corresponds to these engineers' tracking of the IIJA flows. And I believe this crowd sourcing can help us to anticipate BSY's Forward tonnage business also. We took note last quarter of this dichotomy between engineering firms' Skepticism about the overall economy and their optimistic sentiment about engineering workloads and their own prosperity, which has only become And finally, After the survey, confidence significantly and throughout the next 2 years, the extent of this That is so thoroughly surveyed, back to our unusual color by which last quarter showed a rather gratifying balance of lean in terms of our new business activity. And for us that refers to the proportionate Thank you, Arden, Koortz, Weisinger.
The industrial sector continues its recent month to mama modestly make a new business. While EPCs overall particularly improved, but haven't nearly recovered to pre pandemic levels, to a greater degree this was due to the He sees this 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 courts and utilities The resources sector continues to lead as to relative new business strength in sequence mining and other 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 the terms of new business and ARR growth by account segment and commercial model.
Starting with the SMB segment, Among our 2020's growth in this, Duodity has already propelled our new business productivity in SMB And now we come proportionately to our enterprise conference zone and is still literally taking off. Again, this quarter, we sold over 600 new bottles, It continues to amaze me, contributing again 3% in our business performance area. 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 E365 consumption based commercial model, Which again in 2022 Q3 contributed the majority of our ARR growth and to which we again upgraded dozens of enterprise accounts by invitation upon our annual renewals. In turn, the majority of E365 ARR growth comes from consumption increases, including application mix accretion to use of more valuable products.
Within E365, we appropriately share the consumption risk with our E365 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 AEC Advisors, which literally brings together the top executives Of the firms who do the great majority of infrastructure engineering in at least the Western world. As the only sponsor, Bentley Systems helped again this year in the preparation of the 2nd annual Going Digital survey I will now briefly go through AEC Advisors' report of the results to share these firms' perspective ongoing digital As that establishes the potential for our E365 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 business 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, going digital helps in generating more value by moving to the right. So note how much change is finally expected by the CEOs as to their clients' priorities within 3 years. Going digital is a relatively urgent necessity for their firms to remain competitive.
Here are the most common digital investments reported as underway in 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 data sets to train machine learning for proprietary analytics. These active investments bode And as to the theoretical ROI on going 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 AEC 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 here in offerings that our Itwin 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 firm's Business models, while also helping us to extend digital twin to all infrastructure owners. Their galvanizing priority, Consider the AE CEO's consensus as to the proportion of their firm's market value that they expect to be attributable to their success in going digital. 10% So far, 20% in 3 years, 36% in 10 years and in the next generation, majority of your firm's market value. So that's the range of views from the CEO's office in a typical E365 account.
I think their aspirations tolerably correspond to Bentley Systems' own priorities and advancements, but their firms tend to be managed at the next level By 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 Levins. In introducing new digital workflows within E365 accounts, we need to operate at a level sufficiently Strategic to respond to and discernibly help towards these C suite aspirations, But at the same time, we need to operationalize and organize our success force to communicate the potential down the ranks and to steadily Advance in 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
Thank you, Greg. Let me provide an operational perspective And add some color commentary, starting with regions. You already mentioned the most notable development in Q3, the clear Your 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. It represents 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 IHJ funding. Easier than ever. They're constrained only by the available talent that they have. The word balance that greatly described by performance across sectors It applies across regions as well. In every region, market conditions remain positive in infrastructure engineering software.
India, Southeast Asia and Middle East continue to stand out. Europe is trending favorably overall. Growth picked up in all Remain steady in Central Europe with Southern Europe in the quarter. In China, lockdown restrictions against COVID continue to wait on the economy. President Xi Jinping called 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 Fukui, a leader in civil engineering software in Japan. Civil infrastructure projects are substantial and critical in Japan given the terrain and seismic risks. The Japanese government's high construction mandate is to accelerate going digital in infrastructure engineering and project delivery. The unique opportunity is a combination of global software with domestic leadership for the needed localization and on the ground distribution.
Fukui has adapted open roads for Japanese requirements, following the same playbook we used successfully in China. And Fukui will leverage our Itunes platform To offer new digital twin solutions in Japan as another strong example of our ecosystem approach to Itwin. Switching to products. Open Roads and other civil engineering products performed very well in Q3, in North America and India in particular. Our growth remains strong with our structural analysis products, In particular, STAAD and Saks in energy production, including offshore wind platforms and PLS and SPYLA for energy transmission and distribution.
Our growth continued to accelerate with open flows for the world infrastructure. When I I joined Bentley more than 2 years ago. I was impressed with engineering expertise in the company across engineering disciplines, including civil, Structural and geotechnical. Greg likes to call his colleagues our success force, and they're indeed instrumental to the success of our users. But what we were lacking, however, was the science of success management, the function which is now well established in cloud companies.
It is that science and experience that we brought into the company by welcoming Kath Loelevins as our Chief Success Officer. Cat, could you please take a few minutes to describe how we are ensuring the success of our users, especially with the E35 program, Which is becoming such an important part of their business and ours.
Thank you, Nicholas, and thank you all for your time. I joined Bentley a little over 2 years ago. And as Nicholas said, Bentley long believed in the importance of putting customers The center of the company. And to be frank, it is one of the reasons that I joined Bentley. The leadership team had ambitions to do even more and this was the inception of this iteration of the Success Force.
Our use of success organization is made up of a team that has more than 670 industry and product subject matter Experts as you just heard from Nicholas, people who came from the industry, who are the boots on the ground, did the jobs And understand our users, understand the industry. Their very purpose is to have a relentless focus on creating loyal users By helping them realize their business goals. We're very proud of this team. They understand how to, above all else, keep the users front and center. From our voice of the customer teams who have many touch points along the user engagement corridor listening to our accounts, to our support people We respond to the issues impacting our users in a very timely manner, all the way through to the consultants and success managers Who walk the halls alongside our accounts, understand the problems that They have to solve and representing these problems back in Bentley's holds with Bentley's product leaders, Giving our users a unique seat at the table.
As Greg explained, our E365 program is an increasingly important part of our business. In building out the E365 program for enterprise accounts, We created a program that was tailored to their needs, giving them easy access to the software they need when they need it, providing them transparency, Reporting and insights into engagement, a plan that delivers real time help to get users up and running fast, help them transform the new ways of doing business, Helping our people to embrace new technology. Our engagements start with a joint success plan Based on their business problems that our accounts are seeking to solve and then leveraging one of the great values of our H365 program, our Blueprints. Accounts in our A365 program get a defined number of credits to spend on Blueprint. And blueprints are targeted engagements designed to accelerate the business outcomes of our accounts, Helping them to tackle anything from very specific business problems all the way through to transforming their business practices.
Blueprints have been very well received by our accounts as they try to navigate change. So when we talk about proven, 50% of blueprints have been executed at least 5 times by our enterprise accounts, all with proven outcomes, which we validate Through our exit surveys, our library blueprints have been designed to We will rinse and repeat, leveraging lessons learned every time, lessons which we pass on to our accounts. We track the progress with our accounts through our quarterly business reviews, engaging with the leadership teams at the accounts to determine how well we are jointly meeting our goals. The program is working as designed. It's helping our accounts transition.
It's helping them grow and win more business. Overall, we're seeing the results of our user success programs for our accounts and it translates into for them increased projects, Increased revenues and overall efficiencies. And for Bentley, through our relentless focus with those accounts and users, we're getting great insights, Great feedback and of course higher consumption and usage. E365 as a program works. The Success Force Engagement works and it works because great service matters.
Great service delivers For our accounts, our users and for ourselves. Thank you.
Thank you, Nicholas and Tanette. Along with Chief Marketing Officer, Chris Bradshaw, They are top level members of our operating council, which Nicholas leads, who have joined Bentley Systems during and since our IPO With public company experience. And to me, our most important corporate development during 'twenty two Q3 was Similarly, Mike Campbell joining us as Chief Product Officer to succeed My gauge of Mike's importance throughout his 27 year career at RPR PTC Is that on his watch, PTC went from category leading modeling applications to inventing and leading in datacentrism, PLM, To perhaps the most successful business lines anywhere In industrial IoT and augmented reality, this is all to say that Mike has largely blazed the trail towards product and PTC's case, digital Mike enthusiastically transitioned from management of PPC Mainstream Products to spearhead its cloud services from start up and from acquisitions, Just as we will be asking and helping many of our developers and product managers to do. Of course, Mike has jumped in here with both feet And we'll be participating in product keynote at our year end infrastructure event in London, where I am now, next week. Of particular interest to investors, 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 juries in 12 categories who credit digital twin advancements in their project playbooks.
In each case of context capture for reality modeling, generally from drone video, synchro4dconstructionmodeling And our Itwin platform cloud service, there is steady progress, but still mostly upside And the digital twin potential, even among these best projects. You will have the chance to meet firsthand, not only Mike Campbell, but also these finalists, if you can make it to London next Tuesday, November 15. Our keynote sessions will be live streamed for all, but investors and analysts are invited to attend in person for a concierge experience of the event 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 BSY most recently We'll conclude my report of corporate developments with a non development on the corporate front regarding insider ownership. I guess 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 it concerns me to have heard recently from investors new to BSY their impression, for instance, based on this Bloomberg page, That our insider holdings are only on the order of the 22% shown. On the 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 BSY 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 Bentley family economic ownership interest of 59% presently.
That consists of a rather similar number of shares as 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 4 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 me now receive the gross total of shares on which we are obliged to pay our own taxes, I will now hand over to David Hollister to cover, as usual, the quarter's Bentley Investments developments. David will also, as usual, introduce to review our 2022 Q3 numbers and then after Brenner and I will be back for your questions. Thanks.
Thank you, Greg. I'll first give a rundown on Itwin Ventures' activities and developments. Then I'll update on the performance and opportunities in 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 2 year mark of having launched Our Itwin Ventures Corporate Venture Capital Fund, which we formed to stimulate entrepreneurialism in developing digital twin applications, including those leveraging 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 to find and fund very early stage ventures, even seed and pre seed businesses, where we can more readily influence technology and comprehensively introduce Itwin Technologies. Building on the success of our initial ecosystem sponsorship program, We're now introducing our iTwin Activate program. With the iTwin Activate program, we recruit and sponsor a sector or domain specific group Early stage businesses into a cohort and infused intensive Bentley expertise and resources as well as funding in the form of safe notes With that funding staged upon achieving development milestones towards solutions addressing very real infrastructure engineering challenges. Our first cohort is 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, endorsement supported by Bentley Systems And of course, leveraging Bentley solutions and iTwin platform technologies as well as go to market synergies with Bentley Systems. We'll have more discussion about ITO Activate program next week at our Year in Infrastructure Conference. We're excited about this program and foresee lots of opportunity to run cohorts. For example, around infrastructure IoT, transportation and mobility and mining, just to tease a few that are on our radar. Since I last presented our Itwin Ventures portfolio, we've added some additional portfolio investments, including Tera Lytics, Which is the result of us having contributed our Streetlytics traffic simulation data business into Teralytics as well as a new portfolio in Vesti, 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 BSY Investments team is also focused on our acquisition and acceleration 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 EyeLink 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 meet. I'd also like to comment on the performance and opportunities in our Grid Integration Group, which notably includes our recent acquisitions of PowerLine Systems and Spion. 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 Bentley Systems, and I here 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 and geography, I do offer The anecdotal outlook that I see no change to our Grid Solutions trajectory and performance, supported largely by current strength and momentum And a receptive macro environment with consensus mandates for grid hardening and expansion, energy security and transition and the corresponding public funding in support of it.
Although the delays in permitting reform are still intense. Lastly, just a comment on acquisitions. While the Platform PowerLine Systems acquisition earlier this year is Vidi, The closure rate on programmatic acquisitions this year is clearly down. The pipeline is there and we're actively working many opportunities. Our programmatic acquisition appetite and strategy have not changed, But our discipline in this macro just haven't 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 2 years. And as mentioned, we have delivered everything we expected and more from our Sequent and PowerLine Systems platform acquisitions. The brief respite in close programmatic acquisitions has also enabled us to take a bite on leverage, which isn't a bad consolation prize. And I know Werner will have more to say on liquidity and leverage Winnie discusses our financial performance. So I 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 impacts from the strength in the U. S. Dollar, Which we started to discuss and quantify last quarter and which continue to impact our as reported operating results and actual exchange rates. Total revenues for the Q3 were $268,000,000 and On a constant currency basis, our 2022 revenues For 12% in Americas, 14% in the year and 23% in APAC. Year to date, total revenues were 17% worth 23% on a constant currency basis.
Almost all of our revenue growth comes from subscriptions, representing 88% of our total revenues So in 'twenty two, Q3 and on a constant currency basis, growing by approximately 18% year over year. This growth is supported by our business performance, Vijay, got Greg and Nicolas described as balance across sectors and regions and our platform acquisition of PowerLand Systems in January 2022. Our year to date 2022 constant The growth of approximately 27% reflects the incremental impact from our platform acquisition of Cvent in June 2021. The growth of our E365 program and especially consumption growth within our E365 accounts as well as the continued momentum of our Virtuosity subscriptions We've been solid contributors to our business performance. Regarding our perpetual licenses and services revenues, there has been no material change in absolute amounts Our previously discussed trends, which are reflective of our focus on recurring subscription revenues.
I'll next cover our other constant currency metrics. Our account retention rate is now rounding up to 99% and our constant currency recurring revenues net retention rate, which is a key measure Our success in growing recurring revenues within our existing accounts increased to 110% led by continued accretion Within our E365 consumption based commercial model, our constant currency ARR growth rate remained at 14% year over year, It is the combination of 11.5% from business performance and 2.5% from the onboarding of PLS in 2022Q1. Greg already discussed the intrinsic seasonal aspects impacting our ARR growth, the impacts of our exit from Russia, Associated contract cancellations in China and relatively lower contributions from programmatic acquisitions year to date 2022. Considering these factors, a nominally stable year over year constant currency ARR growth from business performance at 11.5% Seems to reflect an uptick in ton of business fundamentals and gives us sufficient confidence about 'twenty two Q4 To maintain the range of our full year constant currency ARR growth outlook. So in constant currency, our business remains robust Even net of exit in Russia.
Moving on to actual currencies. Our last 12 months recurring revenues at actual currencies Increased by 20% year over year, representing 88% of total revenues. Our platform acquisitions of Sequium and PowerLine Systems And their post acquisition growth contributed about 14 percentage points of this improvement. The continued strengthening of the U. S.
Solar resulted in significant year over year currency headwinds, reducing GAAP revenues at actual currencies. Relatively to the foreign exchange rates Assumed in our 2022 annual financial outlook, FX headwinds lowered our GAAP revenues for the quarter by approximately CAD15 1,000,000. To further quantify the impact of the U. S. Dollar strengthening on our annual financial outlook, if current exchange rates would prevail throughout the remainder of the year, Our full year GAAP revenues will be negatively impacted on the order of $40,000,000 relative to the revenues based on the exchange rates and effect When we determined our full year 'twenty two outlook at the beginning of this year, our GAAP operating income was CAD55.5 million for CAD22.53 And $167,900,000 for year to date 2022.
The comparative period of 'twenty one Q3 and 'twenty one Q3 year to date Reflect an approximately €91,000,000 one time accounting charge related to the recharacterization of a portion of our non qualified deferred compensation plan From an equity settled arrangement to an eventual cash settled arrangement, I refer you to last year's narrative and our 10Q for a more detailed discussion of the Our GAAP operating results reflect charges for acquisition related costs, Notably for PLS in the first half of twenty twenty two and for Seqrin in the first half of twenty twenty one. And then going into 2022, Incremental amortization from purchased intangibles from these acquisitions and incremental non cash stock based compensation, partly offset by mark to market valuation gains From the revaluation of our deferred compensation,
we have a very strong
balance sheet and liabilities. As to stock compensation, the increased charges reflect the accounting for our post IPO change to full valued RSUs in place of stock option Also, Sohrab, our top executives have a much higher proportion of compensation paid in stock than pre IPO. Viva, our Board closely monitors stock based compensation to minimize dilution and our very favorable comparison to peers in the economic non stock based compensation is purposeful and permanent. On the right, our Q3 adjusted EBITDA grew by approximately 6 percent over 21.3 percent and our year to date adjusted EBITDA of €273,900,000 is an improvement of approximately 16%. Our ethylene adjusted EBITDA margin is 33.7%, and we remain on track towards our 33% adjusted EBITDA margin target for 2022.
And while our adjusted EBITDA in absolute terms is, of course, impacted by currency movements, the FX impact on our margin target remains Significantly mitigated given our natural hedge. This has become more effective with the inclusion of new And a secret whose invoices are primarily denominated in U. S. Dollars. With regards to Liberty, our Q3 GAAP operating cash flow improved 19% year over year and year to date improved 14.8% Compared to 2021, our year to date operating cash flow of €238,000,000 represents a cash conversion ratio from adjusted EBITDA of 87% Even after payment of acquisition related expenses of $13,000,000 our last 12 months operating cash flow of €319,000,000,000 represents a cash conversion From last quarter, non adjusted EBITDA of 88% after payment of the acquisition related expenses of 14,000,000 During the 1st 3 quarters of 2022, we spent approximately $42,000,000 on de facto share repurchases associated with stock based compensation, Serving to offset the evolution from such compensation.
As we discussed earlier this year, We significantly reduced such de facto share repurchases starting in the Q2 and in Q2 announced the stock repurchase program, Which enables us to consider market conditions and flexibly reprioritize in the application of our cash generation as between pro formative acquisitions, and stock repurchases to offset ongoing dilution from equity compensation. During the second and third quarter, We repurchased $28,000,000 of our stock under this program with $15,000,000 of these repurchases during 2022Q3. As of the end of September, our net debt ceiling leverage was 1.3 times, down from the 1.6 times 6 times as of the end of December last year, which are presented during the year end 2021 operating results call on a pro form a basis to reflect the Our net debt leverage was 4.7x as of the end of September. And as of the end of September, approximately 80% of our debt Protected from rising interest rates through either very low fixed coupon interest on our convertible notes or our CHF 200,000,000 interest rate swap Expiry in 2013. May I now remind you of our upcoming investor conferences, where members of the management team will present: The JPMorgan Digital Paint and Industrial Design Software Week, the NASDAQ International Investor Conference and the Berenberg European Conference.
And then back to your questions.
Thank you. We'll start with Matthew Broom from Mizuho. Matthew?
Hello. Hi, sorry, can you hear me?
Yes. Okay, perfect.
So you provided the year over year constant currency growth rate for ARR, But what the incremental FX headwind to AR during the quarter? In other words, it would be useful to know how much AR increased by Is the 2nd quarter on a net basis when excluding the incremental impact from FX changes over the last 3 months?
I'm going to let you try that. But what I think is that it's too complicated to do every Quarter on your comparison of actual to constant currency for ARR. So what we did calculate is that year to date in constant currencies, Let me get that right. Well, Barak, can you give
I think You're right. So the actual currency ARR, you can follow it in the presentation and in the Q. For the FX headwind versus our constant currency, yes, we didn't calculate that way.
Okay. Yes, it would definitely be just given the current sort of extreme FX movements, that's definitely something that I think would be useful for Investors, if you do get the chance to calculate that. And then I guess my follow-up question, just in terms of linearity during the quarter, just in terms of Now what you're seeing from the perspective of sort of pipeline growth, fundamental demand, and also, I guess what you are seeing in October in terms of sort of The momentum is carrying on. Thank you.
Well, I will say that our quota carriers are enthusiastic About the Q4 and the year as a whole, they say that conditions are as good as Anyone has seen and it's hard to imagine that changing during the balance of the year. You might then ask, Why don't you narrow your range of outcomes? And I must remind you that China is the exception to that. We are enthusiastic about China. There are many reasons to be so and that includes our quota carriers there.
The year so far has been spotty in China, starting with the geopolitical problems in the Q1. But since then, it's more to do, We think with pandemic lockdowns and we just don't know whether the Q4 is going to bring a return to the usual Strong Q4 in China has characterized every other year. Maybe it will be even better by virtue of the Infrastructure commitments of the government in China that now can start to flow and are meant to flow quickly. But on the other hand, there are the geopolitical headaches that Haven't gotten any better fundamentally, even though we haven't seen their effect for the past couple of quarters, maybe so much as in the Q1.
So
that's Quite on our minds at this point in the Q4.
All right. That's great. Thanks so much for answering my questions.
Thanks. Next, we'll go to Joe Ruig from Baird. Joe?
Great. Hi, everyone. I want to go back, Greg, to your comment about new business accelerating noticeably in the States. When we think about your business over time, does this tend to serve as a leading indicator for how renewals And ongoing and just on the renewal topic since as you said 4Q is the important period. What do you just kind of think here
that's the
10% renewals is also when a lot of your customers end up making upsized commitments with you? If you're seeing it in new business generation already, does that maybe have positive implications for how renewals are going to go?
Busyness of the infrastructure engineering is Underlies all of those indicia that you mentioned. And I think we're at the Beginning of that, you saw that's the belief of the engineering firms in the U. S. As well. I will point out that The renewal propensity in the Q4 is not As relatively important for us as once it was, it still is by far the most significant quarter for renewals.
But the E365, as you see that that's grown now to nearly a third of our subscription book. And in fact, There is volatility each quarter in the usage within E365, but that's been going in the right direction as well.
Okay, great. And then I guess this is on one part a bit of a retrospective question. As it It pertains to your EPC business and the headwinds that you ended up absorbing In ARR, I think it began in FY 2020 and carried into FY 2021. 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 Customers on their CapEx intentions and that informs what consumption might And back to is 2023 a conceivable time frame for the magnitude of headwinds you have absorbed Coming back and actually becoming tailwinds on ARR performance?
For EPCs, I think, yes. The magnitude of the EPC's work 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 people. It's not back nearly 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 'twenty three, I think.
Great. Thank you very much.
Thanks. Next, we'll go to Matt Hedberg from RBC. Matt?
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 Virtuosity. The 600 new logos were impressive. And I think as you alluded to, the 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 How material can this be to sort of that long term ARR growth algorithm?
Well, I don't think we get our share yet. The analysis we did with Cambashi 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 ARR in a few years perhaps. It certainly is worth Our major investment now in what we call our digital experience platform, it's what we're mainly Spending our discretionary investment now on and hiring for, but it is Years ahead, I would say it's comparable to as long as it'll take us to reach everyone with E365 among the enterprise accounts. It'll take that long 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 is on. He may have mentioned, I think he was talking about kind of the global command environment, but I wanted to maybe just double click a little bit more on I think your results were impressive sort of globally, but maybe just a little bit more color on sort of like how the various regions of Europe Arceline, how they're holding up and just sort of the confidence into the last 3 months of the year?
Yes. I'm filling in for Nicholas Here as he is on the case of our year in infrastructure for next week. We've really had Europe under the magnifying glass, as we said, Each quarter this year in the Q1, it was, as I recall, Central Europe brought up the rear. Last quarter, it was Northern Europe, largely the UK, Where I am now and which caught up on in the Q2. In the Q3, it was Southern Europe.
And I and they're growing, But not comparable to last year, which it must be said was strong growth over the year before. So I think that's the matter of Paying more attention to Europe. It is however behind North America. And you saw that Asia He's quite leading the way. Most significantly there is India.
And India, We've rarely seen such a new business growth as of there. And I think it's 2 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's 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 and 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'll go to Kristin Owen from Oppenheimer. Kristin?
Hi, good morning, everyone. Can you hear me okay?
Yes.
Great. So 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 Our backlog, I want to ask a question in the context of your E365 sort of onboarding process. Given that backlog and that disconnect, Is there an opportunity for you to accelerate invitation to E365?
What would need to be
in place in order for you to move Sure. As it were in that area.
Kristen, we're onboarding more accounts into E365 each quarter. It doesn't look like more ARR 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, who are setting up the quarterly business reviews, we have these 500 blueprints that we ration and so forth. We don't want to dilute 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 and delivering the accretion for us and the additional engineering capacity for the accounts. So we're sort of constrained that way.
But it must be said, our you see that there is very Little left of our original ELS program and generally our invitations are enthusiastically accepted by the accounts As we work down the list now for A365.
And then I wanted to maybe double click On some of the trends that you're seeing in resources and ask if you could provide some additional color there. Is that mostly in are you seeing growth Versus 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 mining New business is up and strong. I say that knowing that It's going to be cyclical ultimately, but it seems we have a lot of electrification and mineral requirements before that Comes about. And then, of course, also in renewables, we have upstream oil and gas, Which has new pressures and of course renewables and offshore activity now is just as often or more Floating and fixed wind platforms, we're really important to the world. And so Resources is setting a new standard.
We haven't seen anything be as strong as it continues Today I think sustainably can remain.
Thank you.
Thanks. Next, we'll go to Gal Munda from Wolfe. Gal? Hey, thank you for taking my questions. The first one is just want to follow-up on E365 as well.
Maybe, Greg, I'm going to ask you, what is the potential when you look at our split 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're starting to introduce more of a consumption model even in a DoT structure. So this isn't limited to just your commercial entities.
Can you talk about that potential as well? Thank you.
Well, 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 E365. We call it internally EPS 365 for public service, which has banded the government accounts have difficulty Changing their purchase orders during the year, but they accept that we all have the right incentives If we want them to use more, because they want to use more as well and pay for that. So it gets kicked up when they hit a Growth in a band. I might say that this is the quarter when we're first introducing E365 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 Appropriate. So it's if you like, it's a temporary cap and floor until the usage Goes through one way or the other. And that will The remainder of the enterprise accounts will take advantage of a lot of that adaptation we've learned and How you do consumption based business in a practical way for each type of account.
That's perfect. Thank you. And then we just want to focus on the resources business as well and thinking about, like you said, When you became public, you obviously had a big headwind from the EPCs, especially on the oil and gas side. And now Thinking about getting sequenced to the mix and kind of diversifying the whole risk of it, how you what is the outlook if you kind of dig deeper, Especially because of the fact that traditional energy business is also having a better outlook from oil prices where they are And also having some sort of CapEx tailwinds expected to come over the next year or 2, how do you kind of Following the new versus the old, I guess.
In that mix, don't forget PLS and the exposure to Energy, transmission and distribution, which is the bottleneck for all the rest of it. If you Spend more on energy transition and spend more on renewable sources, it doesn't help unless there's more and more reliable energy Capacity, which is why David Hollister called that out. But in our favor, not only is These are the tailwinds you mentioned in the sectors we've already been in, but our deliberate platform acquisitions 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.
Great. Thanks. We'll go to Andrew from Lauterberg. Andrew?
Do 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, positively surprised about the strength in the commercial facilities side as well as the SMB Element of the business. And I just wanted to understand if you were pleasantly surprised because the macro environment is kind of negative for those areas Or was it more 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 and 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, what continues to surprise me is Over 600 new logos for Virtuosity in the quarter, because I would have thought there wouldn't be another 600 left, let alone that we would land them all In the same quarter. So there just turns out to be that we don't know the SMB space As well as we should and we'll continue to focus on that.
That's helpful. And then maybe David and Werner on the programmatic acquisition front, you did flag that was that slowing a bit. I guess maybe first of all, would you say it's slowing from a perspective of 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 ARR for next year If this pace of pragmatic acquisitions continue at this rate?
So Andrew, I wouldn't 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 aren't for sale. We're constantly building those Relationships and working them towards a potential transaction. What has slowed is Just the our discipline about valuation. We have reframed our Views on valuation, just given the macro.
And
a lot of it is just Chance, it's pretty volatile. We hit on a lot of them, as you saw in 2020 1 in 2020 for that matter. There have been a couple this year, which follow the traditional pattern. And there have been Many, many this year that for lots of reasons that we can't do anything about Didn't come to closure. But again, what I'd like to emphasize is that there are opportunities out there.
We are reasonable About valuation, and I expect that we'll continue to have programmatic acquisitions as a part of our Strategy, both in terms of growth, but importantly as in terms of building on our solution portfolio And our comprehensiveness and expanding that moat.
And I will add that from my standpoint, capital Location doesn't put any pressure on that. We would be glad and prefer to be continuing the usual programmatic acquisition activity.
So the implications, Andrew, to growth and outlook, if you will, for next year. I 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 1%, 1.5% impact on our growth rate historically, and I would expect that to
continue. Great. Thanks for everyone.
Next we'll try Michael Funk from Bank of America. Michael?
Michael, are you there?
Hey, guys. Can you hear me?
Yes.
Yes, we hear you now.
Yes. Hi, guys. Good morning. Thank you for the question. A couple if I could.
Just going back to one of the earlier Question. Obviously, you may ask about the quarter over quarter, constant currency ARR growth. I think you responded. It's a complicated metric to provide. Just wanted to know, is it complicated that you don't have the data Or have you not run that data yet?
Just trying to better understand what might it provide in the future?
So what we Fred, should I go first?
Yes, please.
Yes. So what we provide is the constant currency AR Growth rate. And what we disclosed as well is like what the actual currency ARR is Every quarter, you see it in the queue, you see it in the presentation, you see the AR growth. It's probably fair to say that our AR growth and the FX The impact correlates with the FX impact that we see on our subscription revenues, Which is a significant contributor towards ARR. And the FX impact that we had this year for Quick trends from the beginning of the year is approximately 4% headwind.
On a constant currency basis, if we compare like revenues to prior Period. It's a 6% headwind.
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 3 quarters of the mid range of the full year's Constant currency ARR growth rate over the beginning of the year? We have to scratch our head to figure out how to do that here.
I think it's making sure that you guys can work it out. And then just on pricing, I know you mentioned in the press release that you're largely hedged to the FX moves, presumably based on Spences, but can you just remind me where are Feet 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 revenues are, however, and that would leave us with a because of our margins With an excess of dollar revenues. But Seqent turns out To be the exception to that, Sequin bills in U. S. Dollars everywhere, but incurs all their costs Outside U. S.
Dollars because they're in New Zealand and Canada and elsewhere in the world. So that tends to serve to rebalance in our favor, the natural hedge.
Understood. And maybe one more quick one if I could. I know we're running towards the same time here, but just on pricing, Greg, 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?
Well, we're pretty resilient against inflation in the following respect. There's a lag though. So We have annual escalation in our subscriptions. Almost all of our subscriptions are billed and paid annually. Our history is, we say a software developer Price index, if you like, that's my way of putting it.
And it's not an across the board escalation. It differs by country and by product. But if it's averaged, Say 3% to 4% in recent years. This year, it'll be a couple percent higher than that, but It rolls in, in the following way. We work it out in the Q1 of every year.
It takes effect during the Q2 Immediately for our quarterly and monthly term licenses, but for all the others, it's the annual renewals when they are reached At the end of the second or third or fourth quarter, so most of that lies ahead of us for the Escalation adjustment, we're in the of which we're in the cycle now. So we are And is that
a fixed price escalator, Greg, that's a fixed price of butter in the contract?
No. 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. It 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 tied to a particular Macro price index.
Okay. Hey, thank you guys so much for the time. I really appreciate it.
Thanks. And with that apologies, we're at now at time. So we'll end the call here. Thanks for your time everybody and we'll see you next quarter.