Bentley Systems, Incorporated
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Carey Mann:]

Good morning, everyone, and thank you for joining us for Bentley Systems Q4 2020 and Full Year 2020 Earnings Webcast. I'm Carey Mann, Bentley's VP of Investor Relations. On the webcast today we have Bentley Systems' Chief Executive Officer, Greg Bentley; and Chief Financial Officer, David Hollister. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This webcast, including the question-and-answer portion of the webcast, may include forward-looking statements related to the expected future results for our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Today's remarks will also include references to non-GAAP financial measures.

[Greg Bentley:]

Greetings and thanks to each of you for your attention. We were together for this purpose for the first time in mid November last year and I began then by reprising our roadshow introduction from our September IPO and subsequent follow on equity offering. We have since then been back in the capital markets yet again for our convertible debt offerings last month. So I certainly don't need to spend our time today as we did last time on introductions to the BSY. Also when last we met on November 11, our annual year and infrastructure conference had just concluded. So I fully described that at the time. Our 2020 infrastructure yearbook had just been published and I highly recommend that you visit our website to review the work of our users in advancing infrastructure by going digital. We would also be glad to send you a physical yearbook on request to our Investor Relations. The yearbook brings together hundreds of what are effectively case studies organized by categories of users nominations and includes for each the playbook of Bentley Systems software, which enabled their advancements. Along with the winners and finalists selected by the juries, there are special recognition awards, including for Digital Twin Distinction and for Exemplary Sustainability. Among other purposes, this would especially inform your likely interest in Bentley Systems handprint for what I call ESDG, enabling sustainable development goals. So first by way of corporate developments, we issued convertible debt maturing in five years, which met with a satisfactory reception in the capital markets. The offering was up-sized from $500 million to $600 million. In addition to which the 15% over allotment was promptly exercised for gross proceeds of $690 million. We secured a coupon of 0.125% for a conversion price of initially $64.13 per share. And we entered into a cap call, which costs about $15 million. So that effectively the exercise becomes – exercise price becomes $72.98 to reduce overhanging dilution for our stockholders. And at the same time we updated and expanded our bank credit facility. Now David will cover the impacts on our balance sheet subsequently to what we have filed as of year-end.

[David Hollister:]

Thanks, Greg, and good morning everyone. I'm first going to discuss our fourth quarter and full year 2020 results, and then I'll provide our financial outlook for our full year 2021. I'll also comment briefly on our liquidity and the significant capital structure transactions Greg mentioned. I'll also close with a few thoughts on our long-term financial targets before getting to Q&A. I'll begin with revenue performance. Our fourth quarter revenues grew 8.2% year-over-year to reach $220 million, bringing total revenues for the year to $801.5 million, growth of 8.8% for the year. Breaking that down further subscription revenues, which are 85% of our total revenues, grew 9.4% year-over-year for the fourth quarter and 11.7% for the full year with strong organic growth across all the regions lead by the Americas and APAC. Obviously that growth is stronger for the year then for the fourth quarter. With the impact of E365 consumption-based short-term subscriptions still temporary a raw growth and some momentum there. And again, this is disproportionately manifested in users with industrial and resources end market exposure. Our perpetual license sales improved during Q4 to be flat to the same quarter last year and bringing total year-to-date license sales to $57.4 million, down $2.4 million or 3.9% for the year. Professional services, while only about 8% of our total revenues is still our most volatile revenue source. Professional services grew 7.7% during the quarter, but remained down 5.5% for the year. Professional services in particular benefited from the 2020 cohesive solutions acquisition and the PCSG acquisition and the SRO solutions acquisition. Each of these are professional consulting businesses added to our digital integrator portfolio. That's the benefit of acquisitions, our professional services declined by $20.8 million in 2019 relative to 2019. The organic declined is twofold. Firstly, other than our digital and integrated businesses, we continue with a concerted effort to migrate episodic professional services from days and rates and fixed fee arrangements and into recurring subscriptions. This migration accounts for approximately half of 2020 organic decline. The remaining organic declines in professional services primarily relate to pandemic induced cancellations, deferrals, and slowdowns with a disproportionate concentration in our industrial resources end-markets. As we previously noted, these episodic professional services revenues are typically for us where we'll feel softness in the face of macro headwinds and cyclicality. To a lesser degree we'll also see any macro induced softness manifesting our perpetual license sales and certain of our shorter term subscriptions in particular, those E365 daily consumption-based subscriptions. As Greg discussed, while we're resilient in growing, we're cautious about the lingering effects of the pandemic in particular within the industrial resources sectors, which represents about a fourth of our revenues. Public works and utility sector, our largest end market representing about two thirds of our revenues while it's not unaffected, it still remains relatively robust for us. Our last 12 month recurring revenues, which include primarily our subscription revenues, but also includes certain services revenues delivered under contractually recurring success plans increased by 10.4%. For 2020 this outpaced our net recurring revenue retention rate of 108% due primarily to new account growth, both organic and acquired. Our deep and long relationships with our accounts again are proven with our 98% account retention rate and growing and expanding with those accounts continues to be our most significant source of growth in an area where we continue to invest with our user success adoption initiatives as Greg articulated. A significant KPI for us is our annual recurring revenue or ARR. For 2020 our ARR grew by 8% on a concentrate basis. And at the end of the year at $352.7 million at then spot rates. Our GAAP operating income was $54.3 million for the fourth quarter of 2020 compared to $42.7 million for the same period last year. For the year 2020, our GAAP operating income was $150.2 million compared to $141.9 million in the preceding year. In order to understand our GAAP operating results, you have to take the time to understand all the significant and unusual activity we undertook in 2020. I'll highlight the most significant of those here. Firstly, our GAAP results include a charge of $26.1 million for costs directly associated with our IPO in September. Uniquely, our IPO did not include the issuance of any new shares for Bentley Systems. Normally IPO costs are netted against the proceeds from primary shared issuances and don't flow through the issuer's operating results. With no primary shares being issued in our IPO, hose same were charged to operating expense. Also during the third quarter of 2020, but in advance of our IPO, we issued a one-time stock bonus award essentially to all Bentley Systems colleagues. These awards vested upon completion of the IPO and resulted in a 15.1 million charge to operating expense. And as mentioned last quarter, during the third quarter of 2020, we initiated and approved a restructuring plan. As a result, we accrued and recorded a $10 million charge to operating expenses in the third quarter of 2020. The charge was almost exclusively related to San Francisco benefits. This was not a cost savings motivated plan; rather we aligned resources to support our growth initiatives and reinvested accordingly as you've heard Greg discussed. Also during 2020, we incurred foreign exchange gains from their company financing transactions of $22.3 million. These transactions are being translated into their functional currencies at the rates in effect on each balance sheet date, and they fully eliminated our consolidation. As do our peers, we exclude foreign exchange gains and losses from our adjusted metrics as they're not reflective of our ongoing business and results of operations. So for better analysis and understanding of underlying performance, we removed the skewing and non-return nature of these transactions by guiding and reporting on adjusted EBITDA, which was 77.1 million for the fourth quarter of 2020 and $266 million for all of 2020; and increase the 41% over 2019 and representing an EBITDA margin of 33.2%. Even with this adjusted EBITDA metric, there's still a lot going on inside of 2020; this need to e understood. So next I want to double-click on that and share some further insights. So clearly 2020 was anything but a normal year for us. In addition to everything, both Greg and I have discussed so far, I believe there's more to understand about our operating expenses to better understand our margin performance. This analysis is intended to show a normal margin profile for 2020 related back to 2019, which is the best and most recent proxy we have for a normal EBITDA margin year and show a normalized margin performance for 2019 and 2020, which then informs what we expect for 2021. So in this analysis, I normalize for two circumstances. The first adjustment I make here is to reflect the fact that pre-IPO, certain of our top executives were paid only in cash. Post-IPO, those same top executives will be paid in a combination of cash and stock specifically approximately $30 million per year previously paid in cash will now be paid in stock. This re-characterization as stock becomes an add back adjustment when arriving at adjusted EBITDA. Again, we're seeking no margin improvement credit for this re-characterization. It's done to better align us to comp structures and margin profiles of our peers and competitors. So had this re-characterization been in place for all of 2019, and also for the first three quarters of 2020 before the IPO, our EBITDA margins would have been higher by these amounts. The next adjustment I make here is related to expenses, not in our cost structure in 2020 that we expect will be in our cost structure in 2021 significantly. This is related to some fairly substantial pandemic related cost-savings in 2020, which we expect are not sustainable. As we anticipate easing into a post pandemic normal, these savings relate to curtailments in 2020 incentive compensation, travel expenses and incremental costs associated with promotional activities and live events. To be clear, this is not all of our cost savings in 2020, which we've reinvested in into our business to stimulate our growth strategies as we've discussed. Rather, this includes only those savings. We expect not to be benefiting our cost structure in 2021. Feel much lesser degree. We include in this $42 million normalizing adjustment. Some incremental public company costs now fully absorbed into our cost run rate and permanently. So into the future. Our 2021 margin outlook includes such costs. So normalizing paralyzed trauma as best we can, I put this hear in the context of our long-term history and are continued to commit into the future targeting careful, methodical, and disciplined margin expansion in the neighborhood of 100 basis points per year. And here is showing our first tease into our 2021 outlook which I’ll now discuss. As a remainder our guidance policy is to provide our financial outlook annually for a full year and updated quarterly as and if our views for the year changed as we move through the year. Our outlook is obviously informed by what we know about our business and prospects, our reasonable expectations for progression in our growth strategy. Our current sense for a tone of business and an optimism towards lesser direct and indirect pandemic induced macro headwinds as we progress through 2021. And or outlook assumes stability in foreign currency exchange rates and it dies not contemplate any significant acquisitions not already concluded. So accordingly, we're expecting revenues between $895 million to MC795; representing growth over 2020 revenues of 11.7% to 14.8% this expected growth does benefit from last year's acquisitions as well as a favorable foreign exchange environment, notably a weaker U.S. flower today than last year. Of course the opposite is true for our cost expenses given our fairly extensive natural hedge; thus the favorable impact on Margins is somewhat negated. We're projecting constant current ARR growth to be between 8% and 10% and we are expecting adjusted EBITDA to be between $285 million and million $295 million, approximately a 32% EBITDA margin. I also include here some additional expectations on interest and taxes, CapEx, dividends and outstanding shares. I won't speak to each of those now not for your questions, I am just posting them here as a takeaway. Greg previewed several significant transactions which have impacted our capital structure since we reported last quarter just after our IPO. I’ll run-through some details on those and show the effect on our capital structure in just a moment, but first a few comments about cash flow. As you can see here, our GAAP operating cash flows are up 57% in Q4 and 51% for the full year relative to last year. We don't have multi-year contracts, so there's no upfront multi-year windfalls such as that. It's just really solid operational efficiency and working capital focus. Even if I normalize to the $42 million of windfall savings and net of our $10 million restructuring charge, our operating cash flow is still up over 30% in 2020 relative to the prior year. As Greg mentioned, we hit the market very quickly after our IPO with a first follow-on in November. This was mostly primary shares to the company and raised $294.4 million net of fees and expenses. There was also a modest amount of secondary participation in the follow-up. Then in January 2021, we undertook a pretty substantial overhaul of our debt structure. First, we secured an up-sized new $850 million revolving credit facility at very attractive terms. At the same time, we placed $690.0 million of convertible notes and notes mature in 2026, if not converted earlier in the conversion strike after giving effect to the capped call, which we purchased with the proceeds is $73 per share. Reflecting all of these capital transactions and applying the pro forma and effective January, 2021 financing transactions to our December 31, 2020 capital structure, we would have had $519 million in cash, $690 million in debt, for a net debt position, $171 million. This reflects total debt net leverage of 0.6 times and of course, no senior secured leverage given the full $850.0 million senior secured revolving credit facility remains fully available. And lastly, before Q&A I'll offer some transparency into our thinking and expectations about longer-term financial model targets. We expect our historical revenue growth to inflect towards 10%, representing modest increases for ongoing growth initiatives and a modest increase in patient scale of our normal historical tuck-in, buy versus build acquisition cadence. We expect a continuation on average of 100 basis points per year of EBITDA margin expansion. And there's no reason why this won't continue well into the 40%. Some years may reflect more or less than this target based on our then informed views of where to invest and generate the best returns. I continue to highlight that outside of our peer software business, we're still investing in digital integrators and incubating an ecosystem to stimulate adoption of infrastructure, digital twins, and ultimately to create incremental pull through of our software solutions. By design, the digital integrators are service-oriented and lower margin businesses. Similarly, investments we may make in early-stage businesses or initiatives also are obviously pre profitability and maybe margin dilutive. To date, we've absorbed the dilutive effect of these investments into our margin expansion history, but continued an incremental investment here may apply some pressure on margin expansion from time to time, but obviously to the benefit of long-term incremental growth, not otherwise contemplated. We'll continue to anticipate a steady state global effective tax rate of approximately 20%. And as such may be impacted by any future tax law changes in the U.S. or elsewhere. Of course, we've historically been and expect to be nimble and efficient in our tax planning and strategies to help mitigate any such effects. We expect to remain cash flow efficient in a low CapEx business. We will remain committed to a modest quarterly dividend, which may increase over time, eventually expected to settle into the 1.5% to 1% dividend yield range. We expect to attenuate dilution from stock-based compensation with periodic stock repurchases. And as for debt levels, we acknowledged the current low levels of leverage, which are well under 1x at year end and today. And the significant incremental debt capacity afforded by our recent capital structure transactions. We do expect to apply it for continued investment in our business organically, and the acquisition. Optimally we're very efficient and comfortable operating in a 2x to 3x, and sometimes even 4x net leverage position. As investment opportunities come and go, we may be less leveraged as we are today or more leveraged to accommodate unique opportunities. So with that, I believe we're now at the end of our prepared remarks. So I'll turn it over to the operator to facilitate some Q&A. Thanks. Operator?

[Operator:]

Thanks, David and Greg. We'll take the first question from KeyBank, Jason Celino.

[Jason Celino:]

Hello. Can you hear me?

[Greg Bentley:]

Hi Jason.

[Jason Celino:]

Great. So I guess first question the uptick on the growth guidance to 10%, what gives you the confidence to raise the outlook, this soon after maybe sending the initial targets?

[Greg Bentley:]

David its Greg. If you can hear me, I'm working on starting my camera, but go ahead if you want to take the first part.

[David Hollister:]

Sure. Well, so the long-term guidance inflecting upwards from our historical 8% average growth which you could see is the compound annual growth rate over the last five years, 10 years, 15 years, however, you wanted to measure it, it's pretty steady at 8%. The confidence to raise it to 10% just giving long-term guidance to our long-term expectations comes from again an increased pace from acquisitions in terms of number of them which I can see in our pipeline, as well as the scale of them which we’re prepared to be begin investing in larger scale acquisitions relative to our and several of our tuck-ins. So that's part of it. The other part of it is we're just going to get some momentum from these very specific growth initiatives that Greg articulated during his session.

[Jason Celino:]

Okay.

[David Hollister:]

But the guidance for 2021 is more specific and that's informed by where we left 2020 in IRR. And again, we're getting some tailwinds just from currency in 2021 and there's some higher-than-normal tailwind also in 2021 from the acquisitions that we completed.

[Jason Celino:]

Okay. And then maybe for my second question, and then I'll pass it on. I know you've talked at length that infrastructure cost, the country is aging and needs replacing, and it became pretty real last month with all the power outages and one water issues across the country. How is Bentley positioned to help here? And then maybe what does it do for near-term demand trends?

[Greg Bentley:]

So, it's Greg I’ll jump in. It highlights the contributions that digital twins could make. The digital twins are continuously surveyed, they are evergreen, they are always up to date. To the extent they can represent the existing conditions and the record of changes, and for instance, our grid, our water resources, and what's vulnerable to flooding and weather and so forth, the decisions one can make about maintenance, and remediation and adaptation are better decisions. I think the case in point of PG&E in California in our annual year and infrastructure they've been submitters of many nominations that show their reaction to problems in their grid with applying innovations, we could say digital twin innovations to continuously survey, drone survey, and so forth what they are doing and make better decisions. As to immediate demand we are prepared to offer quality assurance services for – in our open utilities and asset and network performance. But in general, increased awareness precedes increased demand. But everyone can be better off. And digital twins are the way to think about how to be better prepared and make better decisions to avoid these problems.

[Jason Celino:]

Great. Thank you.

[Carey Mann:]

Well, let’s take RBC, Matt Hedberg.

[Matt Hedberg:]

Okay, thanks guys for the questions. And I appreciate all the color here. Maybe following up on that question, David, you said that digital twins exit the year at an eight-figure run rate. I believe it had been doubling previously. Can you kind of give us a sense for what your expectations are for digital twin embedded in that 8% to 10% ARR guide this year?

[Greg Bentley:]

So, can I take that Matt? We've been discussing whether to have an explicit, new business growth consistent with the sort of the doubling we've been talking about. And I'm not sure that we are going to be as explicit as that, because our objective in 2021, we say, its wind powered, we want more and more of our offerings to be based on underlying iTwin technology like SYNCHRO, and the asset and network performance offerings, and so forth. In which case it may be with the bundling a little harder to break it out. But Inspirit we're confident about that. And yes, a portion both of our financial outlook revenue growth here and it's increase has to do with the take-up of iTwin services, not only as a platform in isolation though, but underlying the advances in all of our products at this point.

[Matt Hedberg:]

That's great. Maybe just one more quick one for David, your long-term outlook always assumes some level of M&A; I believe one to two points historically. I just want to be clear though, in your 8% to 10%, ARR guide this year that is an organic guide. In other words, anything M&A related could effectively raise that level.

[David Hollister:]

So, again, the guide for 2021 is actually higher than 10%. And there's an organic assumption in there of 7%. There's an acquisition assumption. Just from acquisitions, we did last year of about 3%. And there's a currency assumption between 2% and 3% just because the dollar is weaker now than it was last year. So, there's 7% organic in that 2021 guide.

[Matt Hedberg:]

Got it. Thank you. Well done.

[Carey Mann:]

We’ll next go to Baird, Joe Vruwink.

[Joe Vruwink:]

Hey, everyone thanks for the presentation today. Greg, if I followed the Bentley annual reports accurately going back to the 2000, I think, the mid-to-late-2000s was the last time there was reliably higher infrastructure spending in the U.S. And that also was a time Bentley all in, not organic, but all in was rolling out, I think, a low-to-mid teens revenue pace. And so, the question is, as you look ahead, what is the likelihood we're about to return to that environment? And how is it going to be different this time for Bentley? Or is that the right rate of growth to contemplate?

[Greg Bentley:]

Well, all of us in the U.S. of course, are paying attention. It doesn't seem finally as if there's a question whether there will be a focus on federal spending on infrastructure that seems to be for sure, but what we'll make it up. Certainly, it's going to be more fundamental this time. What's especially interesting about it is the emphasis on, as I say, energy transitions on spending differently on things that are going to keep infrastructure engineers occupied and creating their mix of specialized software for, as I mentioned, the example of wind power, and metros, and so forth, that is different than has ever been the case. However, it more so resembles the rest of the world, if you would like, and especially Asia-Pacific, where this is already underway and our growth rates are already higher. So, we're not in the business of political suiciding. But the fact you have this concerted resolve to make our infrastructure greener and smarter. It has made infrastructure engineering organizations more confident and resolute about going digital. Now that doesn't benefit us until they actually increased the consumption of our products, but we are well positioned to take advantage of their enthusiasm and we share it.

[Joe Vruwink:]

And then maybe just a follow-up, the idea of going digital there's clearly going to be, however, the stimulus unfolds. There's going to be some new considerations. You're already seeing civil project owners, whether they are public or private stipulate, digital handover. You are also, I thought the mix of accretion variable, you outlined, that's going to be a bigger factor to your revenue growth going forward. And so, when you just think about the environment unfolding, again, kind of working with history, in this type of environment, it has meant this for Bentley Systems. Is there going to be a natural, organic growth uplift? I know we're talking about your long-term targets being a bit higher than this 8% compound rate you've done historically. But any sense of how much better it potentially could be, just because of the digital aspect?

[Greg Bentley:]

Well, I am informed by our TAM analysis, which showed how much, is spent per engineer – on product and part engineering software already. And the engineers cost the same. So, I believe there is that headroom to spend more. I believe the path to it involves more specialized software for specialized functions. The infrastructure engineering is behind on that. I think it's been stimulated by the environment in 2020. And as I say, the organizations are not R&D organizations, that's the difference from those that do product and in parts. In effect, we are the R&D organization, but increasing the emphasis on digital twin, and raising the aspirations, for instance, to improve resilience against weather and climate, and so forth, that's all part of raising the ambitions that, I think, will slowly gravitate to increase what's spent here. Certainly, it's well worthwhile for all of us, but that's why we have to discuss the long, the long-term because of the conservative history of civil and structural engineers and digital twins. We're excited to see, for instance, Autodesk validate the concept of digital twins. They announced their first offering. We don't see it yet in this respect at they're Autodesk university, but we have all very much to gain by site being set higher to what would not create deliverables for one purpose, but rather this evergreen digital twin that can keep infrastructure more fit-for-purpose, better adapting and safer and longer lasting.

[Joe Vruwink:]

Thank you very much.

[Carey Mann:]

Well, next go to Bank of America, Brad Sills.

[Greg Bentley:]

Hi, Brad.

[Carey Mann:]

Brad are you there? We’ll come back to Brad. We’ll go to Goldman Sachs, Brian Essex.

[Brian Essex:]

Hi good morning. And thank you for taking the question. Greg you noted in one of the prior responses you mentioned in APAC. And I was just wondering maybe if you could give a little bit of color in terms of what you are seeing in that region with regard to projects duration and pipeline development? And how that might be changing from what we saw over the past few years?

[Greg Bentley:]

In which region Brian?

[Brian Essex:]

In APAC.

[Greg Bentley:]

Yes, so APAC isn't all strong. India was in particular hit hard with not being ready, I guess, to virtualize. But as I say China at the other extreme literally led the way again by virtue of a strong fourth quarter here. And since it went back to physical business sooner, it gives us some encouragement as to what can happen when the rest of us go back to a physical business. But there's sort of the story for 2020 is kind of uninteresting region to region because everyone was kind of in the middle, except the examples I mentioned. But where there are the strongest commitments to leaping ahead to digital twins, it turns out to be Asia Pacific. If I can, I'd like to do a commercial for our infrastructure yearbook. I've had some examples here, but any of you will find it worthwhile you can index by – country index by project category and so forth, search by digital twins, by sustainability and so forth. Often the exemplary projects are in Asia Pacific, and we will be here in the U.S. advocating that when we focus on infrastructure as a country now, we focus on going digital and infrastructure to achieve the same breakthroughs they're doing there.

[Brian Essex:]

All right. That's helpful. And maybe to follow-up for David. Any progress you can illustrate with regard to migrating ELS E365 and what your expectations would be for contribution perhaps for enabling greater application usage on a platform with that migration in 2021?

[David Hollister:]

Yes, we are not even halfway through the potential large ELS book of business that we consider a potential candidate for migration from ELS to E365. So we're less than halfway through. We won't do the rest of it in 2021, but we will continue to migrate. As Greg mentioned, when we do that, we're being a little more cautious now and we're putting some guardrails around unanticipated outcomes for both us and the user. So there's still some incentive within the guardrails to inflect usage upwards for us and we're going to be working hard to do that. And the success teams that we put into play every time we secure one of these E365 opportunities is all that much more opportunity to grow and inflect upwards. We just have to overcome the drag if you will that we've been pretty transparent about. On the E365 intersection where the industrial resources sectors, which is some pretty big ones. We have to weather that drag for them and overcome it with the others and we're confident in our guidance that we could be there.

[Brian Essex:]

Okay, helpful color. Thank you very much.

[Greg Bentley:]

I might just add what's heartening about the E365 migration is that the accounts are enthusiastic about the success plans. They – the fact that we embed our subject matter experts to help them with digital workflows, that's more so than ever what they want out of it at this point in time. They have made it their own priority. And this has turned out to be an effective way for us to work together.

[Brian Essex:]

Got it. Very helpful. Thank you.

[Carey Mann:]

Brad and I think you've been able to figure out your video.

[Brad Sills:]

Great. Could you guys hear me okay?

[Greg Bentley:]

Yes. Hi, Brad.

[Brad Sills:]

Okay, perfect. Excellent. Sorry about that. Well, thanks so much guys. I wanted to ask about China, you called that out as an area of strength for this quarter and for the year. Is there any color you can provide on kind of where you're seeing strength there? Are there any particular segments of the business that you're seeing some strength, whether it's commercial, industrial, or public? And is this the result of some of the investments you've been making there? Just if you could just comment on the environment and the results you're seeing in China. That'd be great. Thank you so much.

[Greg Bentley:]

Well, good. So China is strong across the board and of course you might recall. I said after Q3 hadn't turned out to be the case as it usually is every year that China roar is on and becomes our second biggest source of new business growth. It concluded the year on exactly that footing and tone and it's kind of across the board. We're strong in China in electrical grid. We're strong in increasingly in water and wastewater large-scale projects, but again you'll find the Chinese projects, well – sorry representative here, wind power especially trash to waste, huge important groundbreaking projects. And the business in China is chunky and constant. A difference as we work more so with the channel in China than elsewhere in the world, but there is a lot of momentum. China is a place where digital twins are literally the ambition and every project starts with the reality modeling survey of existing condition that digital context and is maintained evergreen throughout the project. It's just exciting to be meeting the needs in China and to see that we're just scratching the surface.

[Brad Sills:]

That's great. Thanks, Greg. And then one more, if I may, for you, David, please embedded in your guidance for the year it sounds like it's a 7% organic growth assumption. Your net revenue retention is still tracking to that 108, very, very solid healthy levels there at 108. So it would seem that there is a pretty conservative assumption for new business. I'm sure that it's your guidance reflects conservatism across new and expansion activity, but where could you see upside potential if you look at those two areas of growth? Could it be more on the upsell, perhaps there is a product cycle that we could see that could generate some upside there more so? Or is there a region particular maybe it's China where perhaps new business could surprise to the upside. Thank you.

[David Hollister:]

Yes, I'll give my view, but Greg feel free to add what you see. My view of the upside is more the macro, how quickly does the world open up and the projects and users return to normal. So I see more of the upside on just usage of our applications than specific new opportunities. Those are going to be there obviously as they historically have been, but the upside to my guidance of our outlook, I think, is more in the macro conditions that we don't have a lot of control over. But we'll certainly be there to take advantage of it. It happens faster than we anticipate.

[Greg Bentley:]

And I don't think it breaks down so much by region in our view of it now all of our regional territory executives are cautiously optimistic about 2021. I would call out our new focus on SMB; we are already seeing a faster growth there with the 100 people in inside sales focused on it. Sort of the picture in my mind is that with this magnet of increased spending on infrastructure, roadways, railways, metros smart adaptation, resilience, flood resistance, and so forth that that more firms change their growth plans in favor of that and that tends to favor their increasing of their use and interest in our portfolio versus Autodesk and other providers. Hopefully and likely that compounds itself over the course of this year, because I don't think people are acting on that yet, but we have the chance for that certainly this year.

[Brad Sills:]

Understood.

[David Hollister:]

So I would also add that you might ask does the potential for an infrastructure spending bill add to our upside. And obviously that would be a good thing for us, but in my experience, that's more of an indirect longer-term effect. So I don't know that you would see any dramatic uptick to our 2021 – as a results of that.

[Brad Sills:]

Understood. Thanks, Greg. Thanks, David.

[Carey Mann:]

We'll next go to Berenberg, Gal Munda.

[Gal Munda:]

Yes. Hi. I hope you can see me, okay.

[Greg Bentley:]

Yes.

[Gal Munda:]

Awesome. Well, thank you for taking my questions. This first one, Greg, maybe just I found it really helpful for you to break down the performance really between the incumbent products, incremental products and then the new accounts, how they stack up. Considering the fact that you ended the year pretty much close to the budget on the quotas, how are you see – how did you see performance against the quota in each of those segments if that makes sense in terms of the expansions in the new neo accounts. I would have imagined that it was a hard year to kind of grab new accounts and that's maybe something that's just likely to kind of perform better in 2021.

[Greg Bentley:]

So new accounts for us tend to occur with AssetWise and ProjectWise, AssetWise in owner-operators with the potential for digital twins, it's rather unpenetrated and our proportion of all owner-operators, the top 500 that we track in our own top owners. We're – there are more to go than where we are now. But those are procurements. Those are enterprise procurements with RFPs, and typically outside sales. And those cycles in most of the world did slowdown in 2020 when I ask our sales folks are – are they able to be as effective in those opportunities? They say they can be even with lockdown conditions, but I think there are fewer such opportunities. On the project delivery side, there are not new name opportunities because we're in all of those accounts, but there are opportunities to expand ProjectWise and for ProjectWise to become the standard throughout an organization rather than only for portions of it. And I think that does continue to be a good opportunity, but that wouldn't show up as a new name opportunity. Hopefully 2021 is a better new name year. I think everyone in enterprise software would expect that.

[David Hollister:]

So, hi, Gal. I would also add that one of our key growth initiatives is the digital approach small and medium sized businesses. This tends to be – we start things here in the U S with that that's been our focus in North America. So I would expect as that takes traction, you'll see the benefit in the U.S. earlier than elsewhere. So we're hopeful to see some upside there.

[Gal Munda:]

That's very helpful. Thank you. And then just as a follow-up maybe a little bit of an expanding on that, what you said in your prepared remarks, I found very interesting about the potential of iTwin to really penetrate your own CAD base, but then at the same time competitors like Autodesk, so effectively to become the common data environment around those – the center of the workflow management. What is the penetration within the – maybe the current CAD? And then most specifically, is there any penetration within the competitive CAD solutions today from iTwin and it's all that – is it all pretty much a Greenfield for you?

[Greg Bentley:]

Well, so I'll start with ProjectWise. So, it's the case that it's still a minority of our own application users whose organizations use ProjectWise for their work sharing. And so there's upside there, but ProjectWise, the use of ProjectWise includes Autodesk applications, and we've done pretty well there. The opportunity with adding iTwins is to federate and aggregate across projects, across domains, across separate software tools so that if the organization cares about what the quality of the projects they deliver, how many – how much concrete do they use per whatever mile or bridge abutment or whatever with iTwins, you can measure that. You can introduce analytics, everything can be rectified, changed, managed, aligned. What previously were separate opaque objects created by the design tools can now be aggregated and open to analytics. So the opportunity to extend to the enterprise for sake of this machine learning and analytics is one that will be important for ProjectWise going forward as something that can be added even where there is a mix of different design tools.

[Gal Munda:]

So, thank you so much. Congrats again and excellent.

[Carey Mann:]

For our final question we'll go to Mizuho, Matt Broome.

[Matt Broome:]

Thanks very much. So, I guess, firstly, definitely appreciate the additional color on the 2021 outlook. But just for comparison purposes, how much of 2020 revenue growth was organic?

[Greg Bentley:]

About half, about half of our growth.

[Matt Broome:]

Okay. Okay, thanks. And then on 2021 guidance, so I know you don't provide quarterly guidance but how should we be thinking about the sort of linearity of that that sort of acceleration that's implied there? Is it likely to be a, I guess, more back-end loaded as the comps get easier and your growth initiatives gain traction or given that usage has already picked up, is the growth likely to be more sort of consistent through the year?

[Greg Bentley:]

I think it's mostly seasonality, but I'll let David to break that up. You can.

[David Hollister:]

Yes. So – it's multiple things to bring together there. There is some seasonality and we're going to be as we have historically been leading up 2020 stronger in the last half than the first half. So that's probably…

[Greg Bentley:]

Which is because of renewal cycles, not – it's just that's when the annual contracts turn over.

[David Hollister:]

Yes. So there's also the acquisition effect in the outlook which again the acquisition tailwinds are going to benefit the first half more than the last half. Of course, to the extent that we have new acquisitions in 2021, those are going to be benefiting last half more than first half. So then there's the pandemic effect. It's also informing the outlook, which is indeed look we are where we are in the first half and we do expect more – a pace of recovery as move through the year and the last half, as a result of that be stronger than the first half.

[Matt Broome:]

Right, yes, that makes sense. All right, that's very helpful. Thanks very much.

[Carey Mann:]

Well, thank you everybody. That concludes our call for today and thank you.