Altus Group's (ASGTF) CEO Bob Courteau on Q1 2019 Results - Earnings Call Transcript

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About: Altus Group Limited (ASGTF)
by: SA Transcripts
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Earning Call Audio

Altus Group Limited (OTC:ASGTF) Q1 2019 Earnings Conference Call May 8, 2019 5:00 PM ET

Company Participants

Camilla Bartosiewicz – Vice President-Investor Relations

Angelo Bartolini – Chief Financial Officer

Bob Courteau – Chief Executive Officer

Carl Farrell – President

Conference Call Participants

Richard Tse – National Bank Financial

Yuri Lynk – Cannacord Genuity

Paul Steep – Scotia Capital

Deepak Kaushal – GMP Securities

Paul Treiber – RBC Capital Markets

Maggie MacDougall – Cormark Securities

Stephen MacLeod – BMO Capital Markets

Operator

Good afternoon, ladies and gentlemen. Welcome to Altus Group's First Quarter 2019 Financial Results Conference Call. During the presentation, all participants will be in listen-only mode. As a reminder, this conference is being recorded.

I would now like to turn the meeting over to Ms. Camilla Bartosiewicz. Please go ahead.

Camilla Bartosiewicz

Thank you, Vera. Good afternoon, everyone, and welcome to Altus Group's first quarter results conference call and webcast for the period ended March 31, 2019. For reference, our earnings results news release was issued after market close this afternoon and it's also posted on our website along with our interim MD&A and financial statements. Please visit altusgroup.com to obtain these documents and for more information. On today's call, we will begin with an overview of our performance, including a discussion of our financial results and noteworthy developments. We'll finish by taking questions from analysts and institutional investors. If we miss anyone, please get in touch with me directly after the call.

Joining us today is our Bob Courteau, Chief Executive Officer; Carl Farrell, President; and Angelo Bartolini, Chief Financial Officer. Before we get started, please be advised that some of our statements today may contain forward-looking information. Various factors and assumptions were applied or taken into consideration in arriving at the forward-looking information that do not take into account the effect of events announced today. There are also numerous risks and uncertainties that could cause actual results to differ materially from those set out or implied by such statements. They are all described in the company's filings on SEDAR. Our comments and answers to any questions must also be considered in the context of the disclosure in those materials.

Also, please be reminded that Altus Group uses certain non-GAAP to non-IFRS measures as indicators of financial and operational performance. Readers are cautioned that they are not defined performance measures under IFRS and may differ from similar computations as reported by other similar entities and accordingly may not be comparable to financial measures, as reported by those entities. We believe that these measures are useful supplemental measures that may assist investors in assessing and investment in our shares and provide more insight into our performance.

And with that, I'll now turn the call over to our CFO, Angelo, who will start with the review of our financial performance.

Angelo Bartolini

Thank you, Camilla, and thank you all for joining us on the call and webcast this afternoon. I'll begin with the consolidated financial review of our performance and then drill into business segment performance. Before I do that though, I would like to highlight a significant change in IFRS that occurred in the quarter. As you know, IFRS 16 substantially changes the treatment of operating lease obligations by effectively moving these obligations onto the balance sheet and recognizing the use of the corresponding assets through depreciation and interest expense, rather than as rent or occupancy expense on the P&L. We have implemented IFRS 16, using the modified retrospective approach, which means that the change of the treatment is only reflected in the current period and beyond. We have not, in other words, restated prior periods. In both our interim financial statements and MD&A, we present specific line items separately that relate to this change to enable the reader to understand the specific impacts to both the P&L and balance sheet.

A summary of the impacts can be found on Pages 13 and 14 of our MD&A. In order to provide the reader with comparability with past periods, we have modified our definition of the non-GAAP measure, adjusted EBITDA and adjusted EPS to reflect a rent or occupancy expense that would have been measured on a consistent basis with prior periods. We will continue to report in this fashion for the balance of this year to guide users in this transition, but we'll monitor best practices and determine whether it is back to alter these metrics in the future.

With that, I will now turn to our performance review. Consolidated revenues were $128 million, up 3% from prior period. Revenues were moderated by property tax, which was down 8%. Altus analytics showed strong growth with revenues growing 15%. Meanwhile, we experienced single-digit improvements in both our valuation and cost advisory and Geomatics businesses. Consolidated adjusted EBITDA was $13.9 million for the quarter, down 11% primarily due to decline in property tax revenues. Basic and diluted loss per share in accordance with IFRS was $0.01 versus a loss of $0.06 per share last year. Adjusted earnings per share for the quarter were $0.23 in line with last year.

Moving on to the segment review. In office analytics, revenues were $46.8 million, up 15% achieving the target we had set out in our last call with you. On the software side, we saw higher subscription revenues driven by both AE subscription deals and AOD sales, maintenance revenues have also climbed and we continue to experience above industry average renewal rates of approximately 97%. On Appraisal Management, we continue to see good growth in this area. We are increasing the size of engagements with existing – with our existing client base, particularly in Europe and Asia, but we're also signing new clients in North America.

Recurring revenues were contract values for software subscriptions are recognized ratably over the contract term were up 23% from last year. If we were to normalize revenues on this basis, our recurring revenues would represent 77% of total revenues, up from 72% last year.

The adjusted EBITDA for Altus Analytics was $9.8 million for the quarter, up 19%, a reflection of higher revenues. The margin was 21% versus 20.3% last year, reflecting higher adjusted EBITDA, but moderated by continued investments particularly in development of our cloud applications and an increased sales towards our European expansion.

Our general practice has been not to provide guidance. As our software business moves more into the cloud and becomes more SaaS-oriented, the one-time recognition of software – software sales will lessen. Although, we are not planning any hard transition this year, we feel that there is a benefit to providing you with a view as to how our revenues will scale over the next several years.

We are planning to schedule a follow-up Analyst Call in mid to late June to provide you with this view. In the meantime, we're feeling good about this year's performance. While keeping in mind of the large enterprise deals that occurred in Q2 and Q4 of last year that provide us with a bit of a tough compare. We're feeling even better about our 77% recurring revenue base and its growth projections for the balance of this year.

As expected, growth at our Commercial Real Estate Consulting segment was subdued by lower property tax revenues. Revenues were $70.6 million, down 4%, while adjusted EBITDA was $12.1 million, down 23%. In property tax, revenues were $44.7 million, down 8%, but on a sequential basis, our revenues were 15% higher.

Although, we had an improvement on the U.S. side, we were facing a tough compare to last year's performance in Western Canada, particularly in Vancouver and Alberta. And we were lower in Ontario and the UK, where government driven process changes resulted in fewer appeal settlements, which only really mean, there is a deferral of revenues.

This was all expected and consistent what – with what we have been saying on previous calls. Our outlook for the year, however, has not changed. We expect an improvement in year-over-year performance in Q2 and record revenues for the full year overall. We are on track with our expectations of appeal settlements and see indications of continuous improvement in subsequent quarters.

I would like to point out that we have annuity billings that occur in Q2 in the UK. And so from a seasonality business, this could be the strongest quarter of the year. Valuation in cost advisory performed as expected with solid growth coming from our cost practice. We expect to see steady performance and stable margins as we move forward. And finally, in Geomatics, despite the continuing market challenges it is facing, revenues, earnings and margins improved. We continue to expect to see these improvements for the balance of the year.

With that, I'll now turn it over to Bob.

Bob Courteau

Thank you, Angelo. Good afternoon, everyone. We are off to a good start this year, and I'm pleased with the robust financial and operating performance in the first quarter. Starting with Altus Analytics, the momentum we've had over the last three quarters, with strong double-digit recurring revenue growth, is a leading indicator of the progress against our strategic initiative to drive a higher mix of recurring revenues and ease the shift to a full subscription model as we roll-out our cloud platform this year.

We've been accelerating revenue growth, leading with our ARGUS Everywhere strategy; pushing hard on cross-selling and up-selling with our approximately 4,000 ARGUS Enterprise customer base; expanding geographically into Europe and Asia; focusing on the global deployment of ARGUS Enterprise with our largest clients; pursuing large enterprise multi-product deals, all while innovating with new cloud applications to pull customers into the cloud environment and to business and ourselves for a longer term opportunity and data.

It's a multi-layered strategy that we followed over the last few years, and our operating model shows, we're creating great economic value and are on track with our plan. We're trending very well against our internal KPIs and making very good progress. Including add-on sales continue to be a significant contributor of 12% over last year and now roughly 2/3 of our AE license sales. Recurring revenues are increasing, up 23% as Angelo mentioned, revenues outside of North America continue to improve, up 26% from last year and our customers are happy as AE maintenance retention rates continue to consistently average around 97%.

Our product roadmap has been slight significantly modernized with cloud capability and a little bit on that in just a minute. We continue to have strong sales momentum and attract higher value deals. As we point, during the quarter, we closed some notable deals including a major consulting firm and a service provider who extended the use of ARGUS Enterprise across their organizations.

And our Appraisal Management Group closed 18 net new deals in the first quarter, including a mixture of expansion deals for other existing clients as well as new client relationships. And our Appraisal Management new client relationships may start small, but they tend to grow significantly over time on average, and we've seen customers increase their spend with us by 29% over the three years. As Angelo mentioned, we also had good growth from Europe and Asia, where we have first mover advantage, reinforcing the theme of globalization that so prevalent in the industry and their need for standardized and best practices approach to valuations. And equally important, it extends the use of ARGUS Enterprise in these markets. We go to the market together with our customers and that gives us the network effect that we need in these emerging markets.

For instance, a new deal with the U.S. large global fund manager for duration ph of open-end fund includes us providing AE modeling services for them as a start, and is equally exciting, a deal that we closed it's one of the largest open funds in the region has mandated its valuation and its valuation RP that Argus Enterprise used on all valuations in that market.

The critical trend for ARGUS and Appraisal Management in APAC, and I would like to recognize the significant contribution of our new Appraisal Management leader in APAC, Raj Singh, who hit the ground running. And our International Software Sales Head, Cassian Scott, who has also done a very nice job for us as we continue to grow in Asia Pacific. And overall, we're seeing really strong indicators across the organization, be it in pipeline, marketing campaigns, sales and go-to-market productivity, size and type of contracts, retention rates and so on. So we're very nicely positioned.

Like we've been running very hard, we don't always get to stop and acknowledge the important progress we've made over the last few years, which has seen revenue grow by over 46% and earnings grow by over 37%. During this time, we've also established ARGUS Enterprise as the global valuation standard.

We enhanced our cross-sell and up-sell capabilities with new functionality and products, and shifted to enterprise multi-product transactions, all the while again, innovating with our cloud strategy and establishing a foundation for our eventual position as the data integration and data staff standard platform for the global commercial real estate industry. And this is our investment in the platform for the future.

We significantly strengthened our market position and view our AE customer base by over 500% in three years, including adding thousands of new users, hundreds of thousands of AE models on our software and we've done this on a global basis. So our track record and as you've heard me say, I consider ourselves a young tech company, we have an amazing success in a very short period of time, and again, a very exciting platform for the future.

As many of you are aware, last week, we held our Annual ARGUS Connect user conference, which attract the record attendance included a notable increase in attendance by senior executives. Over the years, ARGUS Connect conference has become a key industry gathering, attended by big companies such as all the Alion, Brookfield, Heinz, Ivanhoe Cambridge as well as many of the world's largest service providers. Where people come together to collaborate on key industry issues and benchmark their own practices.

Key customers things in this year, conference were all about their own data strategies. The adoption of cloud solutions, the changing landscape of tech adoption amongst their own organizations and there was a lot of time that we spent discussing their own workflow barriers and business problems. Our approach to the cloud transition differs from what other software companies have traditionally done. Others have rewritten the software in the cloud, whereas our approach has been to pull the customers and with new value-added functionality. We keep selling ARGUS Enterprise, we give them an option about where they're going to operate them.

Operate ARGUS Enterprise and we build incremental new capability in the cloud. To make it more seamless for our customers and overall, less disruptive we're, pulling our customers and with compelling new applications that augment and protect their existing investment in the on-premise deployment of ARGUS Enterprise. The cloud platform will pull them in by providing them with new features and functionality, improved collaboration, seamless integration, while leveraging the ARGUS Enterprise calc engine.

And of course, in a cloud environment, users will be to integrate, share and gain insights from their own ARGUS Enterprise files, access new web apps for various business cases. And we've also integrated this with Taliance and Voyanta. And in the future we'll make APIs available to open up this incredible data sharing opportunity with our partners and third-party applications. This will release data on a global basis.

At the conference, we introduced a new addition of ARGUS Cloud featuring a benchmark in reporting capability that allows customers utilize comparables and dashboards to benchmark existing assets and portfolios, future functionality will enable benchmarking with third-party data and aggregated ARGUS Enterprise peer data. As of July, we will offer clients cloud only deployments of ARGUS Enterprise, while of course, still supporting full integration with existing on-premise ARGUS Enterprise.

As well as support, it's very important of multi-ARGUS Enterprise instances. We believe this will add value to customers. Eliminating internal systems management and related infrastructure costs, enhancing better data which will encourage better collaboration across organizations. Going forward, we plan to release new features every 90 to 120 days to the ARGUS Cloud platform and we'll continue to develop new cloud apps.

We expect this will broaden our cloud adoption, add new client value and importantly allows to add value through the data to our customers in the industry. The intersection of the AE global valuation standard and the data standardization that results on the cloud platform is exceptionally valuable. The byproduct is the most valuable, global, industry data that we believe will massively create information to change our industry.

Beyond our software strategy, our Appraisal Management offering continues to be a strong contributor to all this analytics growth and also creates incredible data value, while we're doing that and has performed consistently well, revenues have been steadily growing every year since we acquired this practice, up nearly a 130% in the last five years. This business under the global leadership of Rick Kalvoda is a perfect case study for how growth can be fueled by innovation from reinventing our service offering with new data and analytics capability to position yourselves to new marketing – market opportunities, be it new geographies or new client needs. This group continues to exploit every growth avenue, underlying our future plans is to leverage ARGUS in the cloud and to create congruence for our Appraisal Management clients with data exchange and DataBridge.

Although, we already have significant market leadership, there remains plenty of wide space for growth, internationally and even in our core U.S. market, where we believe we have potential to nearly double our revenues as we expanded our penetration with open fund and closed-end funds, and expand with separate debt and sovereign wealth funds and offer additional service capability.

So overall, we feel really good about the next phase of growth for Altus Analytics business and our ability to get back on the path to long-term steady double-digit top line and profitable growth and expanded margins. Despite some of the transitional investments of late, we are absolutely driving towards being a rule of 40 company in the future.

And our subscription strategy will only help facilitate that. The market fundamentals remain exceptionally attractive and support our growth ambitions and we're very well positioned for the opportunity ahead with our cloud strategy. It shall only improve the economic value of our contracts.

Let me finish briefly by talking quickly about CRE consulting. As Angelo stated, we reiterated our guidance for record revenues and property tax this year. We've had a good start. With balanced performance and the U.S. is strong and we had a strong start given our compares from Q1 last year, which was an extraordinary year. Our performance speaks to the power of the business model, which includes a broad weighting of geographies, different cycles, jurisdictions and even tax types. And so our cost, our opportunity for the tax business as a global business with critical mass is also very, very exciting, and you know, we're planning a very strong year for 2019, 2020 and beyond.

Our cost Canadian valuations in Geomatics businesses are also exceptionally well run and stable contributors to our growth and profitability. And we have made significant progress in implementing technology in their business processes and we're excited about some of these advances, such as the use of ARGUS at the state master with data and our costs grew in both internal and client workforce.

So in closing, I'd just like to reiterate that we remain in growth mode, we're very energized by the market opportunity ahead of us. Although, there is many moving pieces in our strategy. You can count on us being consistent in four areas; we have a strong track record for execution; we have significant market advantage today and we're pushing that advantage in every market that we serve; we have innovations in every one of our businesses; and we have the best people.

Let me open it up for questions.

Question-and-Answer Session

Operator

Thank you, Mr. Courteau. We will now take questions from the telephone lines. [Operator Instructions] The first question is from Richard Tse of National Bank Financial. Please proceed.

Richard Tse

Yes, thanks. Bob, kind of curious to see why you're so confident about 2019 being a record year for tax. Do you think that there is going to be some abatement when it comes to the procedural changes in Ontario and the UK? Or is it something else that has that confidence high?

Bob Courteau

Well, we had a good quarter. We know that Q2 is looking like – we have short-term visibility. We have the benefit of the billing in the UK. We know what our pipeline is, we measure it effectively, we're seeing settlements at a level that we expected by this time of the year and we talk to the government authorities regularly. And so we feel good. I think the current consensus reflects a record year and we feel very good about that.

Richard Tse

Okay. And then you made a few acquisitions last year, just kind of wondering if you could maybe refresh us on how acquisitions will play into your growth strategy here going forward?

Bob Courteau

Yes, I mean, look, just think about our business model here, we're the real estate software company in every market in the world. We have more customers than virtually all the other real estate companies, we're standard for valuation in Canada, U.S. and UK and very quickly adding Germany and France, we're being adopted in Asia and other markets in Europe as a valuation standard, we train that into a data standard through the cloud. And we are integrating ARGUS Voyanta and Taliance for a full stack.

So we're going to be the company that can give a customer full visibility on a global capability at the asset, portfolio and fund level, and we can do tuck-in acquisitions, because we have the platform in terms of the people to deliver to our customer base and we're building organic solutions in a faster pace because we have a cloud platform to do that. So the ability to the business model that we've been working on and with Carl, we've accelerated over the last year, gives us an opportunity to add functionality organically in partnerships and through acquisitions. That's been the game plan. We want to be a full stack for the front office for commercial real estate.

Richard Tse

Okay. And just one last one from me, I'm not sure this is for you Bob or Carl. But are there any changes that are required on operational basis as you shift the business towards data and cloud? And if that's the case, are those costs are already sort of baked in right now? Or should we expect a bit more spending here going forward? Thanks.

Carl Farrell

We've had and – this is Carl speaking. We have an AOD also on-demand product, which basically operates in the hosting environment in a similar way as a cloud environment. So we've been operating that environment for several years, we have north of over 800 customers in the side that environment. So internally we are very – we have the experience in the organizational infrastructure to basically pivot to cloud now.

So we – the processor in place, all the relevant functions are in place, we mentioned that we did some transition to the sales team last year to get the more oriented. But all that infrastructure that a normal company would put in place for its first time going in this direction, we've been putting in place over the last couple of years.

Richard Tse

Thanks, Angelo for providing those EBITDA numbers. That's actually very helpful the comparables, though.

Angelo Bartolini

Great, thank you.

Operator

Thank you. The next question is from Yuri Lynk of Cannacord Genuity. Please proceed.

Yuri Lynk

Hey, good evening, guys.

Angelo Bartolini

Hi Yuri.

Bob Courteau

Hi Yuri.

Yuri Lynk

I just wanted to follow-up on the tax outlook, I joined the call little late, but Angelo, did you touch on the cadence of the quarterly improvement in tax EBITDA, that we should see, I think you were pointing to Q2 last quarter as being a big quarter?

Angelo Bartolini

Correct. Yes. I did touch upon it a little bit. So Q2 from a seasonality standpoint, we also expect it to be perhaps our strongest quarter. So there is a – the main reason for that is the annuity billings that we have in the UK. So given that and given that we're starting to see a pickup in actual cases being settled gives us lots of confidence in Q2 and the following quarters. I should add as well, Yuri, and again in the UK as well that's tied to those annuity billings tied to the contracts that we have, we're now in the third year. And so as you get – as you move forward in the third year. We now get a percentage of the savings for three years. And so the value of every appeal settled in the UK starting on – starting April 1st, it's higher than, than it was previously.

Yuri Lynk

Right. So – and then I guess, just so I can get the kind of the distribution of EBITDA for the year. I mean it's all going to come basically in Q2 and Q3, right because Q4 is usually a weaker quarter?

Angelo Bartolini

Well Q – what you're referring to is the allocation that we do at quarter. Of the bonuses, I mean substantially, though it's not as weak as it would indicate, right. It's just really right now...

Yuri Lynk

Okay. Sticking with tax, Bob, the UK acquisition CVS is under your belt now for over a year, what's the M&A outlook look like in that segment, especially in the U.S. where there has been some consolidation?

Bob Courteau

Yes, we we've got a team working on it dedicated these days and as you know, these things take time. Most of the acquisitions that are interest are private, sometimes held by family and so lots of lunches and dinners. So – but we're – we've also now limited our focus to some of the large ones where we're targeting organic hiring and small strategic tuck-ins that might help in industry or in a state that we think is material because many of our customers are national. And so we can build off our current North American platform as well. We take a large real estate customer onto a North American platform. So we're not depending only on acquisition, but we got a full-time team kind of dedicated try to make it happen.

Yuri Lynk

Okay. That’s it for me. I’ll turn it over. Thanks guys.

Bob Courteau

Thanks Yuri.

Angelo Bartolini

Thanks Yuri.

Operator

Thank you. The next question is from Paul Steep of Scotia Capital. Please proceed.

Paul Steep

Great. Bob or Carl, maybe you could talk a little bit about how on AE in terms of the mix of subscription versus perpetual, I know you called out strong growth in subscription revenue. But how much of the sales force is actually sort of transition over to selling on a subscription basis versus more traditional on-prem?

Bob Courteau

Yes. So well, what we've been doing is targeting clients that we felt we can get better economic value out of by doing subscription agreements and obviously they're the large ones. This goes all the way back to when we first rolled out DCF, we knew we had to create with the largest companies in the world of business model or – sorry, a business contract that allowed them to consume these ARGUS Enterprise on a global basis.

And to do it in a way where they were advantaged by going quickly and what we're doing now is we're engaging in conversations with many of those same customers on a subscription basis now to update their contracts and timings, working on our side, because many of them are coming up at a time where we get an opportunity to get it then again reframe. These companies – these large installed services providers and large global customers are our friends. They're the ones that benefit when we roll-out ARGUS to create advantage to it.

And so the strategy and we're going to talk some more about this in this Investor Day. I think we call that we're going to give an update to investor call where we're part of the strategy, we'll be the target. Some of the large companies that we think are going to create – call it [indiscernible] or pull for these solutions and put in front of them capabilities that allow them to go first. So that's the idea. We've been doing that all along, but AOD, Voyanta, Taliance subscription agreement, the extension of some of the agreements are all really contributing.

And even valuation management, when you look at our Altus Analytics as a whole position us for a nice turn. And now what we're going to try and do over the next little while, I'm getting away from Camilla, don't say too much, is now really organized ourselves with the clients that we want to leave this charge. And then over some time we'll be only selling solutions in this way.

Carl Farrell

Yes. Just building on what Bob said as well. I mean, we announced at ARGUS Connect that we're going to focus on putting new functionality in the cloud every 90 to 120 days. We released our first April release, we showcased it, there's another one coming in July, we hope, not hoping, we're expecting that this new function also strengthen the strategy by pulling more people towards this in the cloud as well. So the sales teams have been preparing for that, but that's again a very strong part of what we're trying to get done this year.

Bob Courteau

And the second part of your question is yes. We're – we definitely have made it neutral for the sales people to sell either. And in fact, in some in a few cases of what we consider to be target important partners, customers, we're motivating those same sales people to do it on subscription. We're giving them a higher premium for subscription for those strategic clients that are out there.

Paul Steep

Great, that's helpful. On Altus Analytics. Can you just maybe clarify with the ramp-up in expenses, are we now at a level where we should sort of think of that as steady state and the growth level sort of tapered off? Or obviously there'll be incremental growth if you sold new wins. But in terms of fixed costs that you've added to the business, are we more or less there now?

Carl Farrell

This is Carl. I think one of the contributing factors on the expense growth in a has been the expense of our cloud development. At the previous call, where we discussed, we are going to hit a peak around the mid-year and then we've kind of flattening out now those costs as we transition development resources from old technology to the new technology will increase the – basically acceleration of new product coming to market, but with the same core set of resources and expense. So we said, we're trying to flatten the cost now around development, which will kind of sustain the peak now, but we're not reducing the development effort, either we just moving the resources from old to new.

Bob Courteau

Yes. And so to be clear, the answer is yes. Look out of peak.

Paul Steep

Great. And then one last clarification just on property tax. You mentioned that the settlement rates are up, which is great to hear that we're on track for Q2 billings. Have volumes actually hit the levels normalized levels you're looking for in the business? Are we still struggling a little bit to get things working through the system, the way they should?

Angelo Bartolini

Paul, this is Angelo. We're not at the levels that are historical averages. We're well below those. I mean, we're hitting on the targets that we established given going into this year, given where we were last year. So we're hitting our forecasts and we're still confident with what we've said. But we still expect to ramp up – a significant ramp up throughout this year. I don't know if that helps.

Bob Courteau

And historical there is no real historical levels. Because the reality is that the cycle – well, if you look at it tax as a whole, the cycle will evolve in a way where we know 2020 is going to be better than 2019 just by the volumes and the way the model is set up. And so I might – you give me a look here, Angelo, takeover.

Angelo Bartolini

No, I – no, that's true.

Bob Courteau

So you can't do an average is my point. What you can do – now you're looking…

Paul Steep

No, I think you can.

Angelo Bartolini

There is a historical view in terms of just what – versus the last cycle that – so if we're talking about the UK, we would be looking to what the historical averages were. There was definitely a ramp up in the last cycle in 2010 as well and then they hit a certain cadence, it's not perfect every quarter. I mean there is some variability quarter-to-quarter, but there is an established kind of cadence. We're just not there at this point.

Bob Courteau

Yes. No, my point is that – that we're not at the peak cycle.

Angelo Bartolini

Correct.

Bob Courteau

Of the site peak of the cycle.

Angelo Bartolini

Correct. Yes.

Paul Steep

Thank you.

Operator

Thank you. The next question is from Deepak Kaushal of GMP Securities. Please proceed.

Deepak Kaushal

Hi, guys. Good evening, thanks for taking my questions. Bob, first question, I want to kind of make sure I understand what your earlier comments on the Appraisal Management in Asia-Pac, So my understanding is correctly that Appraisal Management is driving adoption for ARGUS Enterprise?

Bob Courteau

Yes.

Deepak Kaushal

Is that something...

Bob Courteau

Happening in Europe, happening in Asia. Because if you follow the logic, if we take an appraisal, US-based Appraisal Management client to Europe and Asia. If they use ARGUS Enterprise at all of those markets and not only becomes a consistent valuation standard, not too worried about what the valuation nuances are in Italy, or France, or Singapore. What they want to do is to bring those values back into the U.S. markets in a consistent fashion.

And what's cool about that is they know it many of the customers that have gone first within ARGUS Everywhere strategy also are bringing that data back in a way that they can use it for multiple purposes. And what we're doing is we're going to enrich that environment without of them having to build them back to proprietary environments. We're going to be the environment they can bring that data back to. So it serves all purposes, well all three frankly for that matter. One, you get a global view your portfolio; two, you get to reuse the data; and three, it supports the business workflows and the business process to actually increase productivity in your business.

Deepak Kaushal

Okay, that's very cool. So is that the key driver for ARGUS Enterprise growth internationally or is that just a sweetener that's adding on like? What are the relative growth rates?

Bob Courteau

That's the – that's a model that we envision for same customer growth. You saw, I said it earlier, the same customer growth is not limited to ARGUS customers, it's across these global large customers where we can sell all of our capabilities, including Voyanta and Taliance to really laid up that whole data and information management environment.

Carl Farrell

But we are driving new customer acquisition into these markets as well with very focused marketing programs with the cloud. Now we have a very distinct advantage. The entry end of the marker and also the high end of the market, but we are very focused on new customer acquisition as well.

Bob Courteau

That's an important point, Deepak, because in Asia, we've closed actually really big deals, but not as a valuation product more as an asset management product, right. And similarly we've done that in Europe when we've gone in the market as well.

Deepak Kaushal

Okay, excellent. And so now with Analytics up in mid-teens in terms of growth, what are the relative growth rates for Appraisal versus? I thought I'd try. Any kind of color you can give would help.

Bob Courteau

Hey, look at, it's interesting, the way I'll talk about that is that these businesses including all those data in Canada are becoming congruent. The things that we build in Canada are going to contribute to the software in terms of how we imagine monetizing data. The integration of ARGUS Enterprise, now ARGUS Cloud with data exchange and our attribution product create a cloud-based workflow. And so it's tempting to want to start breaking this as the part, but we are going the opposite way.

We want to sell us as an integrated platform for customers to operate their whole businesses. That's number one. Number two, and at any point in time, you might not like the economics of valuation management, because when we went to Europe, we added 12, 15 people and we carry that cost for two years, right. But because we did that now valuation the Appraisal Management team bringing ARGUS into Europe.

Now we're investing in the ARGUS software, which drives down the margin for ARGUS, but the whole business has operated quite nicely, because we have a model that really allows us to invest, integrate and as Carl always says, build a front-office platform and integrated front-office platform, right. So breaking out those dynamics, it takes away from the power of the business model, so to speak.

Carl Farrell

And we've seen a lot more sales opportunity, we have the multi-product opportunity between valuation and software and data as well. So we've seen a lot more of that.

Deepak Kaushal

Interesting. That's pretty interesting for me. Thanks. I just do have a follow-up on the tax side in the UK for Angelo. Angelo on the annuity billing pickup, you expect to see in Q2. Does that capture the contingency portions? Or is the contingency portion only come in when there is actually a settlement?

Angelo Bartolini

The contingencies only come in when there is an actual settlement. So this.. yes, go ahead.

Deepak Kaushal

Yes, actually just on the breakdown of it. When we look at UK property tax. What's the rough breakdown of contingency versus annuity billing, is still heavily contingency-based managed?

Angelo Bartolini

Yes, it still is for the quarter. It's significant. Let me say that significant. In the quarter, it is significant. So I'm not going to provide, I'm not going to provide a relative because I'd just add, we're just not doing that, but I would say that it's significant.

Deepak Kaushal

Okay. So logic would be then if this is correct, you'll get a pop in Q2 from the annuity billing.

Angelo Bartolini

Correct.

Deepak Kaushal

And then as the years go on. You'll get the ramp up and contingencies?

Angelo Bartolini

Correct.

Deepak Kaushal

And then Bob said three in 2020?

Angelo Bartolini

Correct, correct.

Deepak Kaushal

Okay, excellent. That’s it for me. I’ll pass the line. Thanks.

Operator

Thank you. The next question is from Paul Treiber of RBC Capital Markets. Please proceed.

Paul Treiber

Thanks very much. Good afternoon. Just want to clarify a comment, your prior comment on AE subscription versus perpetual. And just so I have a better understanding, if an existing customer has a license. I think what you're saying is that AE, they won't go through a forced upgrade. But is it essentially that you're giving them credit for that license to be exchanged for user and the cloud and then instead of selling incremental licenses for new users, you expect just that the new users would deploy in the cloud?

Bob Courteau

So the way to think about it is those customers that have an existing ARGUS Enterprise do not lose the value of that license. But if they are, have that license in place and they want the incremental functionality, the cloud. It's an incremental fee that we would bill in addition to their maintenance and they would sign a new agreement when they did that because they need to sign a cloud agreement, right.

And then when you start thinking about this at scale where people start wanting to collaborate and drive the use of data in the cloud, we imagine that we will be negotiating maintenance agreements broadly with – because you're not going to do these one-off, companies who don't want to make that functionality and that'll be part of our transition plan as we go through 2019, going into 2020 to make it favorable not unlike what we did with DCF in the past to go early.

And again, all of this work will smooth out the transition. Now the other interesting part of that is that if they are not owning the ARGUS Enterprise license and they want to start taking advantage of things like our benchmarking, department or working asset management group. So have to buy a full cloud license. They won't – we won't piece part it and at some point, perhaps, we'll only have one offer. And – or I shouldn't say that, one configuration for what we would call the enterprise version. So you want to add anything to that?

Carl Farrell

Yes, I mean in the July release of cloud gives us a cloud only version of AE. So new customers coming after July, brand new customers who do not have all this enterprise on premise, we can take them straight into the cloud. So we put them in a much cleaner environment up to July.

Bob Courteau

And not to get ahead of ourselves, because we're going to actually articulate this Paul. But if you just take Carl's last point, the pace at which we do that with the largest customers creates some tension between perpetual revenue this year, which drives economics this year and higher value in future years. And most importantly, just like we've been doing all along eases the transition. If we do this right.

And so what we're going to try and lay out for you guys is, what our expected transition is going to look like, both net new existing customers, new functionality and give you a view of this. We haven't done it today. We didn't do it now, because obviously, we want to protect our final strategy in terms of customer pricing, but that's how we're thinking about it, Paul.

Paul Treiber

Okay, that's helpful. Just moving onto Taliance, it looks like the disclosure in the MD&A, based on my math suggested it contributed $2.5 million in revenue this quarter, it looks up, like it's up quite a bit from Q4. Just what drove the quarter-over-quarter increase in Taliance revenue? And then how's the year-over-year growth rate of Taliance you can disclose that? Or how is it tracking versus your expectations at the time of the acquisition?

Angelo Bartolini

Paul, this is Angelo, it's pretty much tracking as we expected it. And it's pretty much. It's up a little bit, but it's not up significantly from the acquisition point. So it's tracking to our plan.

Carl Farrell

I think on the advantage now that we have full integration with Voyanta, with ARGUS Enterprise, we are seeing significant interest now and bring in Taliance into these environments. So we are feeling good. That was a key point for us to get that integration out.

Bob Courteau

And we're literally three quarters in now. So we had to do the integration and Paul, this is the European product, right. And European in for the most part, we do have customers in Canada, couple in the U.S., the U.S. teams ramped up now pipeline is good. We feel really, really good about it.

And always what's interesting about all of this is that again coming back to the transition to subscription these are the kind of things that – and also allow our part of the transition and you particularly Carl you understand that, part of this is getting our sales force organized to sell subscription base SaaS products, right. And so by having Taliance and Voyanta, we got a really nice jump-start there on our execution of our sales strategy. So a lot of these things have benefit beyond the product. And so we're feeling pretty good about it.

Paul Treiber

And then just one last one for me, just looking at a high level in the prop tech space VTS put out a press release is talking that they did around the financing and the value of the business sort of $1 billion. The – what do you think about in terms of either deploying capital in the prop tech space or being a participant or partner there in that opportunity?

Bob Courteau

Well, we have, I mean we are going all the way back to Real Matters weight point REIX, we've absolutely honest buildings we participated with Brookfield on that deal. And part of the reason that I got into this is way back when we were looking at making investment with high tower and/or VTS before they were combined. We didn't do it, because on one side you had us, one set of real estate customers and on the other side, you had a different set of retail of CRE customers. And we didn't want to upsell one or the other by actually picking one of them.

And – but we even way back then, we're looking at, looking at that and we don't, we look at like I know the metrics of VTS, I know the team. I just was with Nick two weeks ago, speaking at Colombia, we're really good friends. We see a lot of opportunity to create product together down the road.

So the first, the first point is, we're investing in and we believe in it, we've even got money in some – some little bit of money in the – some of the venture capital companies, which gives us tremendous insight into what's going on. Two, if you looked at ARGUS Connect, we have VTS there or Hightower, Honest Buildings, REIX, Waypoint they were prominent, we've bet on those companies in terms of our partner strategy.

Three, we think with our APIs are going to be able to build some really cool stuff and there will be a consolidation phase in our industry and we expect to be part of that. And by being friends with these core companies, when they get to decide they want to work with we'll probably be front of the line.

Paul Treiber

Great, thanks for taking my questions.

Camilla Bartosiewicz

Thanks Paul.

Operator

Thank you. The next question is from Maggie MacDougall of Cormark Securities. Please proceed.

Bob Courteau

Hi Maggie.

Maggie MacDougall

Some talk about cost growth in analytics easing towards the back of the year? And then we've already seen recurring revenue growth, pickup. So wondering at what point in the future if it's next should you think analytics can consistently start hitting that rule 40 target?

Bob Courteau

I told you somebody would ask. Look part of our goal and setting up an investor call is to talk about the churn and show the economic value. The benefits of the work that we've already done. And moving to subscription. We think that we're going to have a really good story around that, that is the path, fastest path to rule of 40 growth. And we're not going to pinpoint, the date, but will show you the economics.

And then it will be about really continuing to drive our bookings at that point, but we've been working on this for two years, all the way back to AOD and we believe that the leading indicator, we started talking about this a year ago was going to be recurring revenue growth. It shows that we can sell this way and we have the products to do it. And now we're – we believe that the infrastructure economics are not bad. And we've got lots of products to sell, we've a good pipeline.

And so it's not – we don't think, we're going to – you guys will be the judge of this. We don't think we'll have the drama that others have achieved by our strategy including the fact that we don't have to replace the dated product. This is even not even DCF to AE. When we went to DCF to AE, we actually had to change products, files weren't – in the first three versions, it was hard to move files from DCF to AE, we're not going to have that problem.

We have a very, very, very good architecture. We have a lot of products to sell, we've already solved the infrastructure complexity with AOD and we're carrying that team forward. So part of the reason we're going to share that with you, as we think the economics are going to be good. And then we've always been execution company one that delivers and I don't like I'm looking at it, Angelo, I don't think we'll pinpoint that date I doubt, but will probably show you a path that you're going to really like.

Maggie MacDougall

Okay. Just a question, following up on your ARGUS Connect conference. Wondering what the feedback was from your customers that you spoken with regarding some of the functionality that you're going to start offering them in the cloud, in particular the benchmarking tools that you're going to provide to them. Seems as though, those are things that they can't really do right now. And so curious as to what the reaction was on those items?

Carl Farrell

This is Carl, Maggie. It was great. I mean, I have to tell you that as customers who puts us in that direction a while back and said, hey, when you get in this environment here, the things we would love to do so. We used a lot of customer comments to start this down up path. At the conference, we mentioned that this the April release came out, which was the benchmarking. We have another product will compare coming out in July, which allows comparable so correcting comparisons across the different models.

And then we put the potential for other product, so that we're going to develop during the year and we ask customer inputs on those four products. So we'll probably get two of those products delivered in 2019. But we're trying to be a lot more transparent with our customers, we're trying to gauge their interest in what we are delivering because it's a short very rapid cycles of development. We're able to take a lot more of an agile approach and involve customers in what we are doing that.

So my impression and the feedback I got on conference as well, very positive, very different approach. They are not waiting the year for functionality and we're a lot more agile and reacting to some of the things that they wanted us to fix over a period of time. And cloud infrastructure just allows you to get things, certainly the data in one place and do a lot more with the data than we've been historically able to do.

Maggie MacDougall

Okay. One final question for me and it's a with regards to UK property tax. So recall when you bought CVS, the initial early goal was to sort of keep up keep all the teams intact and try to get as much market share as possible. And then you did restructuring, I believe after a period of chasing down sales opportunities. We had this process changed with sort of impaired near term value that we've seen come out of property tax.

But I'm wondering, where you may have to pickup annuities and then build in your contingencies in the UK. If you would expect to realize, not only the economic value of your pipeline, but also the benefit of those early efforts on picking up market share and then taking out some costs?

Angelo Bartolini

Hi. Maggie. This is Angelo. So we have actually through our integration process a year ago, maintain the best of both companies, quite frankly, which is a very successful integration. We did actually achieve some synergies in more of the back office areas, we achieve some synergies just in terms of how we went to market through business development, marketing. So there were – there we did leverage some of the cost base, if you will. We kept our surveying teams intact and our aspiration is to grow the market share beyond what we had done individually.

We're on track to at a minimum achieve the kind of volumes that we would have done individually, if you just combined it, we're actually still bringing on new clients, we're still increasing them number of appeals, we have in the pipeline. And so, I wouldn't call what we've seen over the course of the last year to year and a half as an impairment because that would suggest that we've lost value, and we've not actually lost value.

There is really just, it's a timing element here. So where – the value in the pipeline is there and it's growing. And the contingency, absolutely, thanks, Bob. What we've been able to do by combining the businesses is actually increase our contingency fees. Again, that was one of the areas where we bought – we brought together the best of two sides and pricing was actually one of them and we used to go to market and they were – we are both near the top in terms of market share by volume. And so we were sort of natural competitors and beating ourselves up. And so there's just a bit of a synergy there. And we have actually taken up the average value per appeal as a result of that.

Maggie MacDougall

Right. And sorry, one more question, have you seen any instances where competitors in the UK have not been able to manage the process change very well and that may be providing you with some opportunity either to gain share or perhaps find some M&A opportunities?

Angelo Bartolini

I'd say that we – definitely we're ahead of the curve in terms of what we're seeing with the industry in terms of the number of appeals that they register, that they're settling. We've been going hard. The industry seems to be behind. We don't know if they're not building pipeline at this point, because obviously we don't have visibility to their internal databases.

But from what we can see publicly there, they're behind where they would have been at this point in the last cycle. In terms of opportunities, we're still very optimistic about growing market share whether it's organically, which we're doing and through acquisition. So we haven't closed the door on acquisition opportunities. We're still very keen on it.

Maggie MacDougall

Okay, great. Thanks a lot.

Angelo Bartolini

Okay.

Operator

Thank you. The next question is from Stephen MacLeod of BMO Capital Markets. Please proceed.

Stephen MacLeod

Yes, okay. Great, thank you. Good evening. I know we're sort of past the hour here, but just wanted to squeeze in one last question. Lots of good color so far, but just in terms of data. Carl, you mentioned that the cloud infrastructure will allow you to do a lot more with data than you have been previously able to do. Can you just elaborate a little bit on what cloud gives you specifically around data and the opportunity to sort of monetize that versus the current infrastructure?

Carl Farrell

Yes. If you look at the current infrastructure, I mean, all the data files on premise with our clients, right. So us having access to that data is a very different problem. As we give clients the ability now to publish that data into the cloud to use the functionality of the cloud. We got access to the data with their permission, but let's take a step back, we got access to the data, they get access to the data as well. So we're providing an environment where they can bring single instances of their own data to one place.

And also with the release come out in July, we can support multiple instances to our larger clients who have 10 instances, 20 instances of August enterprise can all published the models into one place. And they can start doing benchmarking, reporting on a global on enterprise basis across those models. So it brings that seamless integration for the clients into one place. There's one data model in play that inside the cloud as opposed to various data models on summit.

And in the future as I mentioned to connect with the clients authorization. Now we can start doing aggregation and peering in the cloud. So our clients are very interested in understanding how they perform to the industry to different asset types, geo's and things like that. And they are much more willing to share the data to be anonymize and aggregated and we see that as a huge benefit for our smaller clients and also our larger clients. And the technology that cloud just simplify the whole approach.

Bob Courteau

If I build on, just a second. So remember what the calculation engine does, it actually deals with asset classes. The deals now is currency, it deals with the complexity of valuation uniqueness that collects over 300 data points, that allows you to actually start imagining how you could collect data once for purpose like valuation, but then through the cloud and APIs release that into workflows, into other data repositories like Voyanta, into capabilities like data exchange and for the customer.

We've had a number of customers that have brought ARGUS Enterprise to bring that data back in the standard format into their repositories to then again give it to their investors or to co-mingle it with property data kind of – or sorry, partners like property managers. So they start collecting the sales data. So all of this sets up and have very interesting ecosystem where we have the most number of customers, we have the most number of industries serve, now the most geographies. So very quickly, we're thinking of our platform, not just as a global valuation capability, but as a global data platform.

Stephen MacLeod

Right. And do you think that ability with data and giving clients and customers the ability to benchmark and compares of. Is that a – is that one of pull features that you're talking about?

Carl Farrell

Yes, absolutely. And again, we picked it very quickly once we understood how important it was for clients to see across sort of models inside a single instance of ARGUS or multiple instances, everyone's looking for consistency of how they're doing their work, benchmarking across different value as an outside firms they're using. It was a key requirement, which we're able to fulfill very quickly. And then, as Bob said, we can take that now to the limit. And maybe we can just keep going with this concept.

Stephen MacLeod

Okay, that’s great. Thank you.

Camilla Bartosiewicz

Thanks Steve.

Operator

Thank you. There are no further questions registered at this time. I will now like to return the meeting back over to Mr. Courteau.

Bob Courteau

So a number of these people that are on the call for an ARGUS Connect, you listen to me talk at our Annual General Meeting on Tuesday or back today. So we're so happy that you are so interested in our company. Although I must say, you must be getting tired in me by now. So look we're – if you couldn't tell by the messaging, you should have got from the tone, we remain ambitious, excited and feel very, very comfortable about the transition that we're in, as we become a company that is modern, global and will deliver information at scale to our clients. So thanks for joining.

Camilla Bartosiewicz

Thanks everyone. We look forward to connecting again in June.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Should you have further questions, please contact Camilla Bartosiewicz at Altus Group at (416) 641-9773. We thank you for your participation and ask that you please disconnect your lines.