Good morning, and thank you for joining Bentley Systems' Q4 2022 Operating Results and 2023 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, Chief Investment Officer, David Hollister, Chief Financial Officer, Werner Andre, and Chief Technology Officer, Keith Bentley. This webcast includes forward-looking statements made as of February 28th, 2023, regarding the future results of our operations and financial position, business strategy and plans and objectives for future operations of Bentley Systems, Incorporated. 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. After our presentation, we'll conclude with Q&A. And with that, let me introduce the CEO of Bentley Systems, Greg Bentley.
Thank you, Eric, I hope all of you have had a chance or soon will have to meet our new and very experienced investor relations officer. Thanks to each of you, as always, for your interest and attention. Today, I, COO Nicholas Cumins, and CFO Werner Andre will review our resilient 2022 Q4 full- year operating results. As the infrastructure engineering software company, aligned global priorities and momentum from our three incremental growth initiatives, E365, Virtuosity for SMB, and 2020 investments, reinforce our confidence for, again, a strong operational and financial outlook for 2023. Today, we will also hear, as I always enjoy, from founder Keith Bentley, who will be transitioning his Chief Technology Officer role at the end of this quarter and retiring later this year.
The investment community will hear for the last time from former CFO and current Chief Investment Officer, David Hollister, who will be retiring at the end of this quarter. As always, I will start with what's new in our tone of business. Our key operating results headline is year-over-year constant currency ARR growth, consistent with our original and sustained financial outlook of 12.5% in business performance, which excludes ARR acquired with Power Line Systems. For the quarter and for the year, this reflects robust and sustained momentum everywhere else in the world, making up for having lost Russia and for compounded headwinds in China. There, in addition to geopolitical concerns, which are not abating, as evidenced by more recent developments, during the fourth quarter's major annual selling season, the pandemic first caused a shutdown of our offices and then widespread sickness after the reopening.
As well, the government's intended infrastructure spending seemed to have been delayed. For the year 2022, for instance, as reflected in our anticipation last quarter, we would have exceeded our range of ARR growth outlook if not for the regression caused by Russia and a knock- on counter-globalism in China. We are cautiously bearing in mind those risks in China in our outlook for 2023. With respect to the relative tone, the color of business by infrastructure sector, the only change in Q4 was that the commercial facilities sector finally flatlined. We had been anticipating this earlier in 2022, and we do expect this to continue for 2023, though only affecting a single-digit % of our ARR. We have regularly reported on the Dodge ENR quarterly survey of civil engineering firms' self-reported backlogs.
I believe Q4's reported downward assessment as a percentage of their ideal backlog has more to do with the reporting firm's assessment of what's ideal for them, as the same firms report net increases in backlog from Q3. Moreover, the ACEC quarterly survey, representing a much larger sample across all engineering firms, actually quantifies the substantial current backlog as fully 12 months. Especially in this survey, their continued expectation of a further increase in backlog over the coming year. The related sentiment survey also shows continued improvement over last quarter. For our accounts, in the face of workforce constraints and growing backlogs, going digital is the priority for increasing their infrastructure engineering capacity.
Our consumption-based E365 commercial program, embedding our enterprise success expert teams to implement each E365 account's prioritized blueprints for new digital workflows every quarter, is the first of our own primary incremental growth initiatives as E365 accounts achieve demonstrably faster ARR growth than our other enterprise accounts. In 2022 Q4, as expected with our seasonal bulge in renewals, we upgraded accounts to E365 at about twice the ARR rate as in each earlier quarter of 2022. E365 increasingly becoming our mainstay commercial program has contributed to our application mix accretion that measures the annual change at constant pricing and average user spending per consumption hour.
This reflects their pace of upgrading to more specialized and thus more expensive applications, and has been expanding steadily from approximately 2.5-4.5 percentage points of ARR growth over the last two years. Of course, that's in addition to growth from pricing escalation, volume, and cloud services adoption. Our second incremental growth initiative has been our Virtuosity go-to-market strategy for SMB accounts and prospects. From the beginning, it has generated exponential growth, continuing to reach in 2022 Q4, a milestone of over $33 million in Virtuosity ARR. For yet another consecutive quarter, Virtuosity's new business included more than 600 further new logos, enabling us to surpass the further milestone of over 40,000 unique accounts globally. New logos added almost three percentage points of ARR growth.
Among our existing accounts, net revenue retention in Q4 remained at its high of 110%. Concluding as to SMB, in Q4, SMB represented fully 47% of our overall new business. Even in China, SMB new business grew year- over- year in 2022 Q4. In fact, new business overall was healthy in Hong Kong and Taiwan. I believe our applications are competitively well-positioned throughout Greater China. To reach our potential there, we must navigate the geopolitical issues that currently limit our prospects in the primarily state-owned mainland enterprises. In December, we announced in China our second Chinese joint venture, which doesn't yet have an English name. It's with HDEC, a large design institute that's part of PowerChina.
We've worked closely with HDEC for decades as a major account, and particularly to support their development of China-specialized applications based on our platform, both for their internal use and to market to their peers. The joint venture with HDEC, whose business is primarily engineering for hydroelectric power generation, will soon become our exclusive channel partner for all hydropower accounts in China, representing almost 20% of our business there. We will transfer to the JV, along with some Bentley China colleagues, our existing direct relationships, and a capital contribution for our one-third ownership. HDEC will contribute two-thirds of the capital and its existing application business and products. The JV will initially resell our existing applications as well as HDEC's.
Over some years we'll work to increasingly shift the mix towards all indigenously developed Chinese products built on our platform, paying us royalties rather than net product revenues, and eventually leading to hoped-for investment returns as well. The JV will cater to the preferences of this Chinese enterprise market. Those are preferences for perpetual licenses rather than subscriptions, and rather than our cloud-based enterprise systems, for on-premise systems like iLink, the reworked derivative of ProjectWise now coming to market from our first JV. During 2023, major portions of our ARR in China will tend to regress from gross to net. As subscriptions are cannibalized for perpetual licenses. Given the magnitude of the Chinese market, accounting for 30% of global infrastructure spending, we think that to manage through the geopolitical headwinds, these investments and risks are warranted for sake of the long term.
That's too early to knowledgeably quantify this drag on 2023. You will notice that our annual outlook for 2023 in terms of ARR growth looks like 2022's annual outlook and actual outcome. The complete loss of Russia obviously can't occur again, the possibility of China somewhat following suit could be a significant 2023 factor. For both years, let me emphasize that Russia and China are the asterisk exceptions to our backdrop of unprecedented sustained growth and momentum for our business and for our colleagues everywhere else in the world for 2023, as Nicholas will now elaborate.
Thank you, Greg. I am pleased to report that we made a strong finish to 2022, see momentum continuing into 2023 with healthy pipelines and a very brisk bit of business. Market conditions remain positive. Q4 was a very busy quarter, with more evidence of IIJA investment and EU recovery funds flowing through, more so than in prior quarters. As Greg pointed out, accounts appear to be more concerned about their capacity to execute rather than their book of business. Talking about momentum, I would like to acknowledge the invaluable work of our new Chief Revenue Officer, Brock Ballard, who has been instrumental in the successful global rollout of our E 365 program. I'm delighted that he now brings his wealth of industry experience to our operating council.
I would be remiss if I didn't also pay tribute to his predecessor, Gus Bergsma, whose relentless focus on execution elevated the company's sales performance to a new level of precision. Looking at the regions, I will draw your attention to Europe and India. Europe was a bright spot with improving market conditions and a strong pipeline. The main growth drivers were public works and contractors in industrial sector, as well as an acceleration of E 365 conversions and consumption. In India, momentum continued at both enterprise and SMB, with public works and industrial driving year-on-year growth. Transportation continues to be a strong point for us, with funds flowing and lots of project awards. India is also a focus for urban and rural drinking water programs, and we made the single largest sale of a water product line in India in the last 10 years.
Southeast Asia continues to impress with the scale of its ambition. It can point to mega projects in transportation, in rail in particular. At the Year in Infrastructure and Going Digital Awards, which were held in London in Q4, two rail projects from Southeast Asia were finalists: the Metro Manila Subway project and the eventual winner, the high-speed railway from Jakarta to Bandung. The project sets a new benchmark for going digital. iTwin technology reduced the design review time by 10% and shortened the construction schedule by six months. Turning now to products, MicroStation grew fast in SMB. This is a positive indicator that there's still an untapped segment of individual practitioners and smaller infrastructure organizations for whom MicroStation has a strong product market fit.
Why this is significant is that these practitioners and organizations who may be using MicroStation on a product for the first time represent an install base that we can in future upsell to a higher value, more powerful engineering application. What Greg calls application mixed accretion, and beyond that, help them get on the on-ramp to infrastructure digital twins. Other brands with notable performance in Q4 included OpenRail, OpenBridge, OpenFlows, SACS, and Leapfrog. Finally, a few words about our colleague engagement. As you will see in the 10-K report, we had a remarkable 92% participation rate in our 2022 annual colleague engagement survey, with 85% of colleagues responding that they are proud to work for Bentley, and 87% glad to recommend Bentley as a place to work. It is gratifying to see favorable comparisons with tech industry benchmarks against a backdrop of tech layoffs and so-called quiet quitting.
This is due in no small part, we believe, to our intentional approach to work flexibility and colleagues' well-being, which facilitates a high level of engagement and productivity. What we call our infrastructure-empowered workforce plan encourages our colleagues and their managers to make effective choices about the right balance of working from home or in the office and truly make the best of both worlds. Our policy of not requiring colleagues to come to the office at any specific frequency has been instrumental in attracting and retaining talent and allowing our colleagues across the world to contribute to Bentley's success in a meaningful way. With those operational perspectives, back to you, Greg, for corporate developments.
Thank you, Nicholas. May I add my thanks to the whole of your operating teams for these best-ever operating results that we're reporting today and expecting for 2023. Following on from the Chief Revenue Officer transition that Nicholas just reviewed, the corporate developments we will cover now are also related to executive succession. Recall that the primary motivation for our IPO after 35 years was to help provide a prosperous retirement for our colleagues who had collectively earned one-third of the company's ownership while making possible our success. As an expected consequence, we will this year substantially complete the retirement succession for cumulatively nearly half of our officers. I describe this wave of management promotions as generational. This year's retiree cohorts has an average tenure of 26 years.
A commitment we have ingrained over all that time is that our operating management is annually charged with realizing scale efficiencies sufficient to expand our operating margins by about 1 percentage point. In our financial outlook for the year 2023, we are now aligning our external margin metric with what we believe most appropriately measures this aspect of operating performance and improving on adjusted EBITDA for these purposes. Based on feedback to date, I think investors will also prefer our compass setting metric going forward, which is adjusted operating income, including stock-based compensation, as encompassing real and substantial economic costs that are conspicuously overlooked in adjusted EBITDA. This includes capturing operating depreciation and amortization, which becomes more significant for us in 2023 as our digital experience investments include some IT expenditures that require capitalization.
Most importantly, to us all as shareholders, stock-based compensation bears real costs of dilution, in our case, corresponding to the free cash flow we use to fund offsetting repurchases. As I described in our own history, we think stock-based compensation is crucial for a software company, but it's economically fungible with cash compensation costs and merits the same informed scrutiny in trade-offs. As a private company, we issued stock options and incurred relatively minimal Black-Scholes accounting charges. As a public company, our comparable grants in full value restricted stock entailed accounting costs at a much higher magnitude. Following the ensuing retirement wave, which I described our equity incentives as having enabled. We have prioritized intentionally rebuilding appreciable equity holdings by our next generation of leaders.
Subject to cash versus stock elections by and for executives, including our CEO, I expect our SBC charges to level off in the 6% range of margin points. Giving full weight to these economic costs, we have progressed quite well in following our internal compass towards increased adjusted operating income with stock-based compensation. From pre-IPO years through the pandemic years, which were subject to normalizing adjustments for the temporary travel and event savings. As reported today for 2022, leading to our confident 2023 outlook to achieve a compounded annual growth rate over the last five years of just under 16% in adjusted operating income with SBC. Most significantly, over this period spanning the pandemic impact, we have substantially accomplished our objective of an annual percentage point improvement in operating margins by this most appropriate and fully encompassing measure.
Two related final thoughts are about our leverage, consisting primarily of our convertible notes maturing in 2026 and 2027. First, if, as is our track record and our plan, we continue to extend this compounded annual growth rate, then at current valuation multiples of adjusted OI with SBC, I think you would see that this debt will in fact convert. Second, to the extent valuation multiples become lower and the debt doesn't convert, the compounding cash generation this portends after fully offsetting SBC dilution should easily underwrite our choice of refinancing. Back to our executive succession corporate developments. Keith Bentley, up next, will introduce David Hollister to review our significant recent Bentley investments. I can say with appreciation that we wouldn't be here without David Hollister.
I will certainly miss his influential thinking and steering, and I am sure that as a continued substantial investor, he will expect ample returns from the long-sighted investments he has overseen. David will then introduce Werner, his successor as CFO, to wrap up. Setting aside any admitted bias, I think the infectious spunk and constructive values and work ethic of founder Keith Bentley have defined our company just as much as his technical groundbreaking and future-proofing. Keith will cover our third primary growth initiative, the infrastructure digital twin generational advancement powered by iTwin that will be his enduring legacy. Keith, you're up.
Thank you, Greg. When we began Bentley Systems' journey in 1984, I'm sure I wouldn't have been able to predict where we'd be at this point as a publicly traded company with $1 billion in annual revenue. It's been an incredibly rewarding and exciting journey for me as the years have just flown by. Of course, I've been at this for so long, and I've made so many multi-decade personal relationships with our wonderful user organizations, and I feel a real personal obligation to them. Likewise, I'm deeply committed to my colleagues here at Bentley, many of whom have dedicated their entire career to our company. Part of me wants to work forever. But alas, as they say, time waits for no man, and inevitably there must be a transition.
Best if it can happen while I can help make it as smooth and successful as possible. While I'm stepping down as CTO, and I intend to start gradually ramping down my schedule throughout the course of this year, the Bentley Systems journey will continue unabated. To me, the future looks even more exciting and more full of potential than it did when we began with the advent of the personal computer nearly 40 years ago. Of course, I will also remain a director and investor in Bentley Systems, lest anyone think there's a danger that I may lose interest in our long-term success. I've been working with my successor as CTO, Julien Moutte, continuously over the past two years, and I've come to have a sincere trust in his instincts and a real admiration for his drive to get things done.
Together, we'll make the transition as smooth as possible, and we're both committed to continuity, both in terms of our long-term directions and our immediate priorities. We expect no drama. Now, as you may know, in the infrastructure software market, we find ourselves at a very real inflection point around infrastructure digital twins, a concept that Bentley nearly single-handedly invented. In my obviously biased but informed humble opinion, there's currently nothing remotely competitive to our iTwin technology stack. It's our priority to leverage our iTwin advantage as quickly and as adroitly as we possibly can. Since we introduced iTwin in 2017, we've seen significant uptake by some of the world's leading engineering firms on the world's most significant projects. A good indicator of that is the number of finalists in the Year in Infrastructure and Going Digital Awards that credit iTwin for their project.
That fraction has increased from 20% in 2020 to more than 40% last year. That's because infrastructure digital twins empower engineering firms and owner-operators to accomplish extraordinary things, to make game-changing improvements with workflows, this process, and even transformative business models. If you haven't already done so, I encourage you to review the recording, the finals presentation from last year's infrastructure, and see for yourselves how they describe it in their words. We want the benefits of using this technology to be experienced by all infrastructure projects and by all infrastructure professionals, no matter the size of their project, the size of their organization, or whatever phase of the infrastructure lifecycle they contribute.
With all the investment going on in infrastructure throughout the world, wouldn't it be nice to think that together we're getting the maximum value for every dollar, every euro, and every other currency being spent, and that the projects are safer, greener, and delivered on time? I know I do. Infrastructure digital twins certainly make information more accessible, and I think can become the building blocks for a very, very valuable industrial and professional metaverse. That make possible new capabilities and process well beyond the state-of-the-art today and probably beyond our current ability to conceive of their ultimate value. We're more excited than ever about the prospects for infrastructure digital twins and of course, Bentley iTwin. That means that iTwin should be pervasive. It already powers the Bentley Infrastructure Cloud.
It already enables us to mobilize data across the infrastructure value chain across every stage of the infrastructure lifecycle. Our priority for this year are to bring the power of cloud-native iTwin to our engineering, modeling, and simulation applications, but without requiring our users to fundamentally change their ways of working. They should be able to incrementally realize the benefits of infra-infrastructure digital twins without having to start over. To accomplish that, we'll embed the iTwin engine inside our existing applications. It's an exciting project and one where Julien and I have been actively involved and engaged, with nearly every team here at Bentley. I have to say, it's one of my most enjoyable projects ever. I've had a tremendous career, and I'm very thankful to all the talented people here at Bentley now and over the years who've made it so rewarding.
We began long ago in an era called computer-aided design, but I now describe our scope as software-aided infrastructure. I think the possibility for that are near endless. Our world needs to improve the efficiency, the longevity, and the resilience of our global infrastructure as a matter of urgent priority. That can only happen with innovative new technology, new processes for all phases of its lifecycle, period. It's not a matter of if, but how. On that note, I'd like to hand friend and our longtime CFO, David Hollister, who will be speaking today on our operating results call for the last time. David, what new investments have you been working on for our as retirees?
Thank you, Keith, for your vision, your leadership, and your kind words. Indeed, I will talk about some new investments. Beyond our noted progress in developing formal joint ventures in China to forge an alternative means of doing business in that evolving landscape, I'd like to give updates on our iTwin Ventures activities and expand a bit more on two of our latest acquisitions, EasyPower and Vetasi. As you know, we formed iTwin Ventures to stimulate entrepreneurialism in developing digital twin applications, including those leveraging our iTwin platform capabilities. In addition to our traditional venture portfolio investments, and I'll highlight a new addition to that in a moment, we sponsor and support a development ecosystem. There in iTwin Activate is our accelerator program, where we engage with early-stage companies and fund approved development projects in exchange for equity, typically SAFE notes.
We completed our first cohort of iTwin Activate, focused on the grid, and the success of this cohort has already had certain products ripe for introduction. Joint marketing and co-selling motions between Bentley and the cohort participants are already underway. It's our expectation that many of these iTwin Activate program participants graduate into venture investable businesses for iTwin Ventures and others to invest in. Since we last spoke, we continue to be enthusiastic and supportive of our investment portfolio and are pleased to announce our recent investment in Oakland, California-based Flow Labs. The Flow Labs platform leverages aggregated real-time traffic sensor and connected car data to generate a synthetic data set approximating all road usage. This data supports a range of optimization and analytics use cases, starting with traffic signal optimization and extending to traffic flow monitoring and optimization at city- scale.
We also see the potential for Flow Labs' real-time data sets to contribute to Bentley's advanced traffic simulation solutions. Within our comprehensive portfolio, EasyPower will initially complement our OpenBuildings, OpenFlows, OpenPlant, and Raceway and Cable Management design, particular in the context of industrial, mining, and commercial building sectors. EasyPower will also serve as a platform to introduce electrical analysis to other of our Sectors in due course. We're excited to welcome EasyPower CEO, Kevin Bates, and his Portland, Oregon-based system. Results. Integrated support to business outcomes and benefits from these business models that we believe engineering firms in particular will find to be an appealing business model and will also adopt accordingly. Vetasi is a European-based maximum focused digital integrator, which very nicely fills geographic voids for us and complements our existing sector focus with presence in utilities, mining, oil and gas, and transportation.
Vetasi also brings a highly skilled team of nearly 200 digital integrator consultants, including in cost-efficient bases in Poland and Indonesia. We expect to realize G&A synergies, sales motion synergies, project delivery utilization synergies, and cross-sell opportunities as Vetasi integrates with Cohesive. While both the EasyPower and Vetasi acquisitions are of our programmatic scale and not material to warrant disclosure of their specific financial information, I do consider we acquired each at what this former CFO considers to be very efficient value acquisitions. The perfect line historically untold secrets for a proper retirement party and speech. I would like to share that I am both humbled by the quality, character, and talent of my colleagues over the years, and am so very proud of what we've accomplished together. I'll leave the body of work for itself.
While I personally may be moving away from driving value each day, I'm lifted by the even greater potential that I see for Bentley Systems, and am comforted that the depth of talent and quality of culture will continue to harvest that potential. Like Keith, but maybe with zero mood, I too will be a Bentley Systems shareholder for a very long time, and you can bet I'll be frequently chirping in the ear of one person or another when I see things that need to be fixed or opportunities to be exploited. Speaking of character and talent, I'd now like to hand over to our CFO, Werner Andre.
Thank you, David, and thank you for your leadership, the impact you have had on Bentley. We finished the year strong with our outlook for 2023. Revenue performance. Total revenues for $287 million, up 7% year-over-year, or 13% on a constant currency basis. On a constant currency basis, Americas, 17%. Subscription revenues grew 13% year-over-year, or 18% in constant currency E365 and Virtuosity. Our acquisition of Power Line Systems in January 2022. Regarding our perpetual licenses and services revenues, recent trends continue which are reflective of our focus on recurring subscription revenues. Many months with full year. On a constant currency basis, Americas grew 22%, EMEA 15%, and APAC 21%. China was a 9 percentage points headwind to APAC's constant currency revenue growth.
Subscription revenues grew 18%, or 24% in constant currency, which included 12 percentage points from our Seequent and Power Line Systems acquisition and 12 percentage points from our business. Our constant currency account retention rate was at 98%, and our constant currency recurring revenue net retention rate remained at 110%, led by continued accretion within our E 365 consumption-based commercial. We ended 2022 with ARR of $1.037 billion at year-end spot rates. For the first time above $1 billion. Our constant currency ARR was 15%. Power Line Systems onboarded 2.5% of this growth and our business performance accounts for the remaining 12.5%, which is the midpoint of our financial outlook range.
The strong and sustained momentum. Our business performance is driven by our E365 and SMP growth initiatives and the continued growth. Acquisitions of Seequent and Power Line Systems, making up for lost ARR in Russia and headwinds in China. Our last 12 months recurring revenues at actual currencies increased by 17% year-over-year. The acquisition of Seequent and Power Line Systems contributed about 11 percentage points of this improvement. Our GAAP operating income was $41 million for Q4, down $3 million, and $209 million for the full year, up $140 million year-over-year. We have previously explained the impact on our GAAP operating results from acquisition costs. Incremental amortization from purchased intangibles, increase in stock-based compensation, and the one-time accounting charge for deferred compensation of approximately $91 million in 2021. Moving on adjusted EBITDA.
Our fourth quarter grew by approximately 5% over 2021 Q4, and our full year adjusted of $366 million is an improvement of approximately 13%. With an adjusted EBITDA margin of 33%. We delivered on our 2022 adjusted EBITDA margin commitment of about 100 basis point margin improvement over our normalized adjusted EBITDA margin of 30.3% in 2021. As you will remember, in 2020 and 2021, we normalized our margin performance for temporary margin inflows. From 2023, we will measure our operating margin performance and improvements same way for our annual outlook as we will do for purposes of executive incentives, which will be based on adjusted operating income inclusive of stock-based compensation. We believe that this appropriately captures the true economic cost of shareholder dilution from stock-based compensation.
It also includes operating depreciation and amortization, which will increase as our CapEx will include digital experience IT investments of approximately $10 million in 2023, and a comparable amount in 2024. With respect to liquidity, our Q4 operating cash flow of $36 million decreased 55%, and our full year operating cash flow of $274 million decreased by 5% year-over-year. We've previously discussed that our business model produces reliable and efficient cash flows over a trailing 12 months period, but with some variability between quarters. We had no significant upfront collections variability on a trailing 12 months basis, and our continued suspension of our E365 program where we collected the deposit to estimate the collections of certain E365 renewals and newly completed E365 contracts over represented new business.
We had a enterprise accounts from the straightforward with consumption generally rising year-over-year for existing E365 contracts with which in many cases were not last year. We start stimulating billing led to later collections, but the collections in early 2023. Our 2022 cash flows were also impacted by higher cash interest, and Q4 was also unfavorable due to some significant vendor payments, which we accelerated to obtain better terms. For 2023 and prospectively with higher interest rates and the higher cash tax burden for the requirement of the 2017 Tax Cuts and Jobs Act to now capitalize and amortize R&D expenses rather than through expensing them, we estimated our conversion rate of adjusted EBITDA to cash flow from operations will be approximately 8 debt repurchases to offset dilution from stock-based compensation.
Accordingly, against stock-based compensation of $75 million in 2022, we spent $44 million on de- facto share repurchases associated mainly with deferred compensation plan distributions. Under our stock repurchase program, which we announced in the second quarter, we repurchased shares for $28 million on convertible senior notes for $2 million. As of the end of December, our net senior leverage was 1.3 x, and including our 2026 and 2027 convertible notes as debt, our net debt leverage was 4.7x . Approximately 80% of the debt is protected from rising interest rates through either very low fixed coupon interest of our convertible notes or our $200 million interest rates while expiring in 2030.
If our approximately $100 million paid investment into programmatic acquisitions does exceed recent averages, we can expect to delever at a rate of about 0.7x adjusted EBITDA annually. Moving to our 2023 outlook. Our outlook reflects our continued margin commitment of approximately hundred maximize our long-term AR growth. While we continue to see unprecedented market demand for infrastructure and going digital, our outlook does factor in a cautious approach towards China due to contained demand for our services. We expect total revenues on as reported to be 11.5% on a constant currency basis. We are projecting constant currency between 11.5% and 13.5%.
Adjusted from our adjusted EBITDA at the rate of approximately 80%. We expect capital expenditures of approximately $30 million, which includes approximately $10 million of incremental IT investments into our ERP system. To help you with your models, I also include here on the slide additional expectations on interest expense and cash interest, cash taxes, stock-based compensation, operating depreciation and amortization, outstanding shares, and dividends. With that, I think we are ready for Q&A. Over to Eric to moderate.
Great. We'll now move to the Q&A portion of our presentation. We ask that each analyst limit themselves one question and one follow-up. First, we'll go to Joe Vruwink from Baird.
Greg, can you hear me?
Yes. Hi, Joe.
First year, first up, congrats to Keith and David on what have really been great careers and, you know, nothing but the best for both of you. India maybe seems like a good analogy or anecdote because of the stimulus, and you do these places being strengthened. You've grown products in India around transportation. I guess my question would be, can we extend this into the U.S.? Have you started to see an acceleration in new business aligned with centers far this long in the IIJA deployment? If so, is it an expectation for the coming year that new business growth hopefully broadens out across the portfolio as the scope of IIJA broadens out across different subsectors?
Well, I think that describes it pretty well. I don't think it could be of the scope of increase of India. Remember India was pretty much affected by the pandemic, so but it's come back way above pre-pandemic levels in India. We basically are seeing increase from the IIJA. North America is not so much any further increase than that in 2023 because of the IIJA spending rolls out pretty beyond road, which is expected by just infrastructure at large. I'll ask Nicholas if he can add more.
Maybe if you were to go first. It is the country we see the most direct link between additional investment in infrastructure software and the infrastructure plan. It's the most advanced, we can point to a number of projects where our software is being used, and it is actually funded by the National Infrastructure Pipeline, as it is called. India benefits from something else, which is there is a number of loads moving work to India. In order to solve work as a, let's say, workbench extension, if you want.
The way they move work over there is not just in order to tap into additional capacity they don't have. It actually gave full responsibility for product management. With respect to the U.S., we have a test bench labs that use it. Pickup that we see in transportation, for example, is indeed related to IIA. To know that it's not time for the money to flow federal to state or infrastructure owner, the contractors. There's gonna be a different money flow.
Then just to spend a bit of time on the resources side of the portfolio, which I think you brought was the areas of strength. Also, you know, at one point in time, kind of, the E365 customers that were end exposed for EPC customers. That was a pretty big dilutive factor on potential ARR. Just wondering, in 2023, do you kind of expect that pent up CapEx comes back online, so you're able to gain back a lot of that loss, if I can call it that ARR? What would kind of be more specific on the
Of course. We have now because they look like at the moment, although they do shrink. On resources, entire base growth.
On the mining is, the indicator is up and stable since 14. There's a lot of activity. It is an electrification. We see also full of cash because they benefited from sustained price increase. They also benefited from the strength of the US dollars, which is the currency that they use for their business. We see is seeing them acquiring a lot of smaller mining companies. In fact, in 2022, the first half of 2022, we saw 50% more in many activity than in the previous year. Yeah. There's a lot of investment going into
To say that PCs, tractors and industrial, those quite a few that among the two growth drivers that we've seen in both Europe and India, in Q4. We've definitely seen a regain of strength there. Now Seequent when it comes to energy is gonna be used more for geothermal, or even for wind platforms, rather than oil and gas traditionally. It's more on renewable source of energy.
Thank you.
Next, we'll move to Matt Hedberg from RBC.
Great. Thanks for taking my questions, guys. The European strength really stood out to me. Can you double click on maybe where you saw that strength, and just, you know, how sustainable you consider it to be?
Yeah. Yeah. In many already prepared remarks, we saw as growth drivers networks, in fact Europe, which is a very large spring. The first one is really in the NextGenerationEU events are reactive plan. That's almost 20% of the funding for that plan is already being distributed across the different countries. We can point to a number of projects that are being funded by that plan where our software is being used, like multiple high-speed well products in Italy. We just had in Q4 a very large electric utility that we won, and we made a big deal because of a project that is funded by the NextGenerationEU plan. There's more coming. Only 20% has been distributed. There is more coming.
There's another plan which is not yet in effect, but is quite urgent because it is about reducing still our energy dependency with Russia. This is called REPowerEU plan. It is still in legislative proposal state. It's not yet enforced. When it will be enforced, it is well aligned with what we see as our strength from a software standpoint, so we should benefit from that as well. That is all additional tailwind that is coming to sustain our growth in Europe.
Got it. Werner, for you on the guidance, is there any way to think about quantifying the inorganic contribution to ARR growth as well as even maybe what you've included for China? I know you said, you know, things could deteriorate further, just trying to get a sense for how deep is your guidance.
I jumped in on China in particular. We began 2022 with China at about 5% of our ARR. This year we start the year it's under 4%. Finally, the currency didn't do well during 2022. So that actually turned out to be a bigger headwind for us than was the loss of Russia and his reason to be apprehensive. If China would be growing at the relatively favorable growth rates compared to the company as a whole that we experienced prior to the pandemic, our outlook for 2023 would be at least 1% higher in ARR growth than it is. Werner, listen to you the question on the programmatic acquisitions which we include in our business performance because it's not worth breaking them out. Go ahead, Werner.
I agree on everything on China and programmatic acquisitions. Over the past, they contribute an average of 1%- 1.5% to annual recurring revenue and to our top line revenue as well. Although more recently on ARR, it was a little bit higher, but approximately between 1% and 1.5%.
Well, it was lower in 2022 because there were few such acquisitions. We're resolved to get back to our type of programmatic acquisitions over time. There's no particular reason for 2020 was just a matter of timing.
Guys, great on the results.
We'll move to Kristen Owen .
Great. Thanks for taking the question. I wanna follow the commentary around the EasyPower acquisition. You talked quite a bit the overlay of your portfolio electrification decision. I was hoping you could specifically to the grid in the ecosystem, who becomes the steward of those data? Are there areas of the world that still are maintaining similar to DSRX and being managed or something like that?
To do their what we call integrated, just putting together from the same point of communications and shared with electrical and distribution, and that's where a lot of our integrated grid efforts have focused on the physical side. EasyPower comes in on the modeling and analysis side. As to a grid, there's a portion, if you like, that belongs to the utility, and then we say behind the meter is the portion that belongs to the major power user. EasyPower has focused to date, mainly, not entirely, but mainly behind the meter. What goes on behind the meter is increasingly a mix of what we call distributed energy resources. It's facilities that are starting to have some solar, starting even to have some wind and some battery storage.
Therefore, for every industrial or commercial or mining facility. Power engineering is never done. It constantly needs to be modeled and updated through a digital twin. That's where EasyPower comes in because it's more approachable and accessible to make part of the digital twin. It's an excellent acquisition for us. We will need ultimately to extend this to all aspects of the integrated grid, but we're gonna focus on this distributed energy resource opportunity behind the meter most immediately with EasyPower.
There we go. Thank you. Apologies for that. My follow-up question is really a follow-up to the prior, which is, you know, you have EasyPower now that you've tucked in this year. Should we think about you returning to that historical point to point, 1.5 of programmatic acquisitions, contributing to ARR growth this year? If you could speak to the valuation backdrop in your M&A pipeline, that would be helpful. Thank you.
It went significantly below 1% during 2022. I think it'd be ambitious to get above 1%. Not sure what our deals are. You know, we're disciplined about valuation, of course. We'd be glad to get back to 1% if you ask me.
Thank you so much.
Next question comes from Andrew DeGasperi from Berenberg.
Taking my questions. First congratulations to Keith and David, as well as Julien on the promotion. Maybe, Greg, could you elaborate a little bit on the digital twin impact, I think you added in terms of the software broadly? Is there like a.
Well, we announced in November at the Infrastructure 2022 Bentley Infrastructure Cloud, which brings the operating platform iTwin's schema to ProjectWise and AssetWise. That leaves the two-thirds of our portfolio, the model simulation applications, focus that Keith talked about. Maybe I'll just say is that it's easy to Keith to stop getting this work. Very significant. We can also implications from the incoming data that they do now. They'll also be creating an iModel that can be referenced and queried for analytics, machine learning and so forth, without their needing to change what they do. I think his change in focus here has been sort of because he knows that our chief technology officer role includes lots of other responsibilities.
He wants Julien to take all that up so he can focus on delivering on this promise to integrate the iTwin platform so that our users are creating iModels at the same time as their traditional deliverables. His time frame for that was the coming year. I think it's a wonderful, ingenious plan he has for that. By the time the year is out, our modeling and simulation software will also include iModel generation for all of our users as they adopt their 2023 edition of our applications.
Thanks, Greg. That's helpful. Maybe, Werner, on the margin expansion, I just wanted to maybe touch base on that. If you could break out a little bit more in terms of what are the components that are gonna get you to that 100 basis points? I mean, how much of it is core relative to the stock-based comp leverage? If also I looked at Q4, based on the release, it looks like the core margin had slightly gone down a little bit. Just wondering, you know, is that reversed essentially in 2023? Yeah, if you can elaborate a little more. Thanks.
We came into Q4. Q3 today was at the high level on margin wise, and the goal was always to come in at the end of the year approximately 33% adjusted EBITDA margin. We knew that as we went into Q4, that we would invest in the business and try to spend in areas that benefit the following year and going into Q4. We managed the margin with our alignment model, where we consistently recalibrate the revenues with our head cost or revenue run rate. Coming to Q4, we are pretty much like balanced with that measure. Yeah, have incremental investments into next year. Going into 2023, we scale as we always do. We grow our revenue as indicated and we reduce our cost a little bit relative to the revenue growth and manage it through the alignment model.
Of course, we don't reduce our cost. We reduce our rate of increase of our cost in relation to revenue. Maybe I'll just comment quickly that I'm always confident that we'll meet our operating margin goal because our operating management has that as a condition for their incentives. Their incentives depend on our ARR growth rate, but are conditioned on improving operating margins modestly every year. The percentage point is not difficult. Well, it is difficult. It's a lot of work that goes into it, but we've become confident in being able to do that.
As you see, we don't wish that to be based on adjusted EBITDA, given its arbitrariness in excluding, for instance, operating depreciation and amortization, which is significant for us now, and especially excluding stock-based compensation, which can jump around for arbitrary reasons like elections by executives and so forth. Nicholas is delivering these improvements, and I'll give you the last word, Nicholas, on that.
I will just confirm that we're committed to keep improving our margin.
Measured the right way.
Exactly.
Thank you.
Great. Next question comes from Matthew Broome from Mizuho.
Hi. Hi. Thanks for taking my question. I just add my congratulations, David, and, you know, best wishes to both for the future. I guess firstly just how did demand trend during the quarter in terms of linearity? I suppose given that we're now sort of two months into the first quarter, is there anything you can say about how usage has been tracking year-to-date?
I'm gonna start on linearity. You know, we had this phenomenon of reduced collections during the quarter, which we sort of didn't plan on or anticipate. We found our negotiations were taking us nearly to the end of the quarter because we and the accounts were negotiating considerable increases in consumption and new deposit rolls. In many cases we forced some cash to be negotiated. We had many conversions, upgrades, I'd say, to E365 that occupied much of the quarter. It's a great thing to be working on when you're working on, you know, going digital plans that require more linearity.
I'll say one more thing and then turn it over to Nicholas, which is the fourth quarter is not a quarter where we have learned to expect volume, consumption volume in E365 to grow much compared to sequential quarters. That's because of holiday. We literally charge for applications per day. There are fewer work days in a, this year was of the nature that I described of renegotiated recess and new E365 upgrades. I described the application mix secretion, which never stops, rather than outright consumption to quite the degree. Anything further, Nicholas, on that?
I will say that the general trend is that we are improving linearity. It is true that in Q4 we have many of these E 365 conversions that happen a little bit late in. Same with Virtuosity, then the beta is gonna be on linearity. Overall trend is improving.
To the end, the SMB and Virtuosity practitioner sales and so forth are more reliable and steady.
Okay. All right. Thanks. Just curious how you approaching hiring in the year ahead. To what extent are you still having sort of success finding out sort of qualified civil engineers to build out, you know, your E365 program?
Nicolas?
Yes. In hiring, we see clearly more applicants now to our job openings, than we've seen before. We haven't seen an acceleration of the hiring process still. Yeah. We still have a lot of candidates who come in with pretty high expectations when it comes to compensation, and we need to then align with what we are able to afford. Yeah. We do hope and foresee actually that it will ease out during the year. That it will get easier to hire. Right now I cannot say that it is much easier. There's definitely more applicants. You could argue that even with more applicants, it is actually slowing down a little bit our recruiting process. Yeah. The key message is the following, which is we are hiring. We are definitely hiring. In order for us to continue to grow, in order for us to sustain our growth. Yeah.
Most of the engineers we're hiring, of course, Matthew, are software engineers, and that's where the phenomena Nicholas talked about. You did ask about civil engineers. Those are important for our success teams, but it isn't numerically the bulk of our hiring, if you see.
No, that makes sense. Sorry, maybe I'll just squeeze in one last one. One of your competitors has been talking a lot about seeing a lot of demand in sort of smart water infrastructure. Just curious what you're seeing in that market, both in terms of fundamentals but also competition.
Nicolas.
OpenFlows is actually, which is our brand for our applications for the water infrastructure, was a highlight in Q4. We did see notable growth, you know, around the world. We did sign our largest deal in India in the last 10 years, which was actually directly related to the major infrastructure plan in India. Which has some provisions in order to upgrade the water infrastructure and make sure that tap water is available to everyone in the rural parts of India. Digital twins of their water infrastructure as the way to get more efficiency, more effectiveness in their processes.
I'll just mention finally that using power, for instance, is very important in greening water infrastructure and energy resilience and transition.
Right. Makes sense. Thanks a lot.
Next question from Kash Rangan from Goldman Sachs.
Hey guys, this is Matt on for Kash. Thanks for taking my question. Greg, Bentley performance downmarket has been very solid with Virtuosity, another quarter of 600 new logos. I think you made a comment last quarter that you're really surprised that there are so many logos to go after in any given quarter. Perhaps if you could characterize how you view the opportunity for SMB heading into 2023, and really just any change to the competitive landscape? Thank you.
I'm gonna ask Nicholas, because we just had the whole sales group together, and the Virtuosity leadership and team are when I say exponential growth, that's their plan for 2023 as well. They're not at diminishing returns in terms of competitive opportunity. A lot of our digital experience investment is self-service, e-commerce and automated renewals and so forth, so that the same team can get even more done. Nicholas, how would you summarize that?
Y es, at Virtuosity, it's still gonna be a big growth priority for 2023 and beyond. We see still an important market for us to go after to convert accounts to Bentley software. It can be, you know, the most, let's say, fundamental software we have, like MicroStation, or more sophisticated solution like the one I just talked about, which is OpenFlows. We also see an important growth opportunities with new logos in the enterprise space, especially when it comes to construction and in heavy civil. We've had some interesting wins in Q4 to confirm this. Of course, with infrastructure owners, operators, right? There's also sizable growth opportunities for us to win new logos in the enterprise space, not just in SMB.
All right. I think the last question we'll take today is from Jason Celino from KeyBanc.
Great. Sorry. There we go. Great, thanks for fitting me in. you know, maybe on the ARR guidance, you know, a lot of moving parts, but just for the benefit of everyone, just wanna clarify that, you know, PLS is not included in the 11.5%-13% guide. Is that correct?
No, PLS is included. What was never included for PLS was what we onboarded. After we onboard an acquisition, we move everything onto our paper, and it's impossible to parse it out after that. I know, Werner Andre, you were going to comment regarding ARR growth to help those who may be thinking about modeling that for 2023 because we provide only annual guidance. We're prepared to go back to 2022 and answer questions that you, Jason Celino, and others asked about the constant currency sequential ARR growth. Maybe you could cover that, Werner.
Yeah. From Q1 to Q4 in 2022, so eventually on constant currency basis, like ARR grew 2% into one, 3.1% in Q2, 3.3% in Q3, and 3.3% in Q4. That is best business performance. That does not include the onboarding of Power Line Systems , as Greg just mentioned.
Okay.
If you think about how to seasonalize that, if you would like to do it for 2023, recall that the numbers, business performance basis in Q1 of 2022 and Q2 of 2022 included Russia and China impacts that we've already quantified, and you might wanna further adjust, because those numbers are net of those impacts. We have wanted to come back and answer the questions we got during the year last year to be organized about being able to do, sequential constant currency ARR growth.
Okay. Perfect. We can take that offline. Really quickly, you know, I know we're moving to the OI guidance with SBC, but if you'll let me ask about EBITDA one last time. Would this have also translated into 100 basis points of EBITDA margin expansion or would have been more than 100 basis points given the decrease in SBC? Thanks.
For 2023, what we can say about SBC, it seems to me it's going to gravitate in the range of 6% ±. The reason that SBC can jump around is, as I mentioned, elections on our executives part of whether to take cash or stock in their compensation. That depends in turn on whether they're going to get their equity distributions gross or net and who has to pay the taxes. That in turn depends on our repurchase program and consideration of the stock price and so forth. It's just, it's not nearly as visible how EBITDA, excuse me, SBC might go up or might go down. This is why we're saying it's going to gravitate out, we think to be 6% for the long term, but hard to say for 2023.
I wouldn't want our executives to be focused on or measured by something which has that bit of arbitrariness in it, in the SBC. Arbitrariness meaning elections that executives could make based on things that are not inside, not within the company's control. I know that gets a little bit complicated, but we think normally it'll be the case that there'll be a approximate correlation between adjusted EBITDA and adjusted operating income with SBC. Adjusted operating income with SBC is the one we can control, we think is economically and conceptually better and for everyone to converge around, as many investors have asked us to focus on that, in fact.
All right. I think that's it. Thanks, guys.
Great. Before concluding, we just wanted to announce that Bentley Systems will be ringing the opening bell at the Nasdaq on March 28th. We have now concluded today's presentation. Thank you for your interest and time in Bentley Systems.
Thank you.