Altus Group Limited

Thank you, Michael. Good afternoon, everyone, and welcome to Altus Group's Q3 2016 Results Conference Call and Webcast for the 3 months period ended September 30, 2016.

For reference, our earnings results news release was issued after market closed this afternoon and is also posted on our website, along with our 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 during the third quarter, including a discussion of our financial results and noteworthy developments. We will finish by taking questions from analysts and institutional investors.

Joining us today is our Chief Executive Officer, Bob Courteau; and our Chief Financial Officer, Angelo Bartolini.

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 numerous risks and uncertainties that could cause actual results to differ materially from those set out or implied by such statements. The factors, assumptions, risks and uncertainties that may be relevant to these differences are described in the company's filings on SEDAR.

Our comments and questions -- and answers to any questions must also be considered in the context of the disclosure in those materials.

I will now turn the call over to our CFO, Angelo Bartolini, who will start with the review of our financial performance during the third quarter.

Thank you, Camilla, and thank you all for joining us on the call and webcast this afternoon. I'm very pleased with our strong performance in the third quarter and with the progress against our growth strategy.

Our Altus Analytics business, which comprises of our software, data and data analytics solutions, grew again by double digits. We continued to see a long growth runway ahead of us as demand for these products remained strong, both in our current markets and globally.

Additionally, our technology-enabled CRE consulting services continued to perform well as this group, in total, also experienced double-digit growth. In particular, our Tax business is expanding market share, and we believe there is great growth potential in the coming years.

I'll first address our consolidated results and then review results by business segment. In the quarter, consolidated revenues increased 8.5% to $110.9 million, driven by double-digit growth in Altus Analytics and Commercial Real Estate Consulting, notwithstanding the negative impact of Geomatics' reduced revenues.

Moreover, the majority of the growth was organic at 6.8%. If we were to exclude Geomatics, our consolidated top line growth was 15.9%.

Adjusted EBITDA increased by an impressive 39.2% to $21.3 million, driven by both top line growth and cost reductions. EBITDA margins for the quarter improved to 19.2% compared to 15% last year.

In accordance with IFRS, consolidated loss for the quarter was $5.1 million or $0.14 per share basic and diluted compared to a loss of $0.7 million and $0.02 per share basic and diluted during the same period in 2015. The loss increased as a result of a $12.5 million goodwill impairment charge recorded on Geomatics and higher income tax expense, partially offset by decreased intangibles, amortization and lower finance costs.

Adjusted EPS was $0.31 in the third quarter, up 40.9% from $0.22 last year.

I'll now turn to our performance by business segment. Our high-growth, high-margin Altus Analytics business continues to put up strong numbers and make further inroad to new geographies.

Revenues were up 12.2% to $36.2 million, including a 14.6% increase in recurring revenues to $27.4 million. Recurring revenues have grown to represent 76% of our total analytics revenues.

Overall, we saw growth across all revenue streams, including subscription sales of AE, Voyanta and data products, AE perpetual license sales and implementation services. Adjusted EBITDA was also higher, up 28.4% to $10.6 million, reflecting increased revenues and cost savings from restructuring activities undertaken during the year.

EBITDA margins improved to 29.2% compared to 25.5% last year. Changes in the exchange rate against the Canadian dollar affected Altus Analytics revenues by negative 2.2% and adjusted EBITDA by positive 0.8%.

We continued to see strong performance from Commercial Real Estate Consulting with global revenues increased by 18% to $62.8 million for the quarter. Much of the growth was driven by strong organic performance at Property Tax, where we continue to grow our market share.

Property Tax revenues were up 24.1% to $38.7 million on strong organic growth in Canada and the U.S. We continue to see great opportunity to expand market share in both the U.S.

and U.K. markets, both organically and through acquisitions.

The Valuation and Cost Advisory practices continue to benefit from revenue diversification in their key geographical markets, driving 9.2% growth to $24.1 million. The strong revenue growth resulted in the 96.4% increase to adjusted EBITDA to $18.1 million, where earnings were up 140.2% at Property Tax to $14 million and 20.2% at Valuation and Cost Advisory to $4.0 million.

EBITDA margins improved to 28.8% compared to 17.3%. Changes in the exchange rate against Canadian dollar affected the CRE Consulting revenues by negative 1.6% and adjusted EBITDA by negative 0.8%.

And finally at Geomatics, with ongoing market challenges brought on by depressed oil prices, we were able to return to profitability during the quarter. Revenue decreased by 28.8% to $12.1 million, while adjusted EBITDA declined to $600,000.

During and after quarter end, we further reduced staff positions in order to better align to market conditions. Included in adjusted EBITDA for the quarter are employee severance costs of $400,000, and we expect to incur a similar charge in Q4.

As indicated earlier, we also took a noncash impairment charge to goodwill in the amount of $12.5 million. We continue to monitor market conditions closely and will respond appropriately.

Finally, at the end of the quarter, our balance sheet remained strong with significant flexibility to support our growth strategy. Our bank debt stood at $118 million with a funded debt-to-EBITDA leverage ratio of 1.6x compared to 1.78x in Q2.

Our cash position at quarter end was $35.8 million with $82 million of available borrowing room under our current credit facility. We continue to also focus on working capital, and our DSOs declined to 74 days from 82 days as at December 31, 2015, and 76 days last quarter.

With that, I would now like to turn the call over to Bob. Bob?

Thanks, Angelo. As you just heard, Altus Group delivered continued year-over-year growth in our key financial metrics with strong double-digit growth from both core business segments, Altus Analytics and CRE Consulting.

8.5% top line growth and 15.9% if we exclude Geomatics; 12.2% revenue growth in Altus Analytics, including 14.6% recurring revenue growth; 18% revenue growth at CRE Consulting, including 24.1% growth at Property Tax; and 39.2% consolidated adjusted EBITDA growth; and overall improved margin performance to 19.2% compared to 15% last year. Very strong performance across-the-board.

At Altus Analytics, we're making great progress across our strategy, driving higher sales from existing and new customers, market share gains in new geographies and enhanced value from product improvements. I'm really happy with the reorganization of the business unit that we launched earlier this year.

It's driving positive results financially and operationally, and I'm really pleased how the team has come together and rallied around this common vision. We're seeing more collaboration, unlocking the synergy, a unified road map and joint sales and go-to-market platform efforts with a strategic focus for the opportunity in data and analytics.

I'm also pleased that in our fully integrated model, we now have a direct focus on marketing, sales, product management and develop within Altus Analytics, truly operating as one business unit. Q3 was the first time that our ARGUS sales team -- sales reps closed Voyanta deals directly.

By way of another example, we have former Voyanta resources working on the ARGUS Enterprise road map, and we just released the new functionality integrating ARGUS and Voyanta. And our ARGUS support desk personnel are taking over responsibility for fielding Voyanta support with queries.

Additionally, our former Voyanta Marketing Manager is now running marketing for EMEA across ARGUS and Voyanta, and our ARGUS and Altus Analytics Marketing Manager is managing marketing for the company as a whole.

During the quarter, ARGUS had good sales growth virtually across all regions with particular strength in Europe, where majority of our overseas clients are new, by contrast to North America, where we still get a lot of sales from existing clients converting for a legacy DCF product. Sales of ARGUS Enterprise remained strong, both from existing customers migrating over to ARGUS Enterprise and from new customers.

We also benefited from solid growth in our recurring appraisal management solutions, both from existing customers who have more assets on our platform or have increased frequency evaluations and from the addition of 2 major customers who are actively seeking our Data Solutions. We see a significant opportunity, not only with our top 200 customers, but with the broader CRE market as we continue to drive adoption of our solutions with the largest customers in the world.

Turning to CRE Consulting, Property Tax and Valuation Cost and Advisory, we continued to demonstrate market leadership in each of these respective practices, delivering strong top line growth and adjusted EBITDA performance. Coming off a strong first half of the year, the Property Tax group continue to put up great numbers with a notable improvement in their margin, 31% year-to-date compared to 23% in 2015.

During the quarter, we also experienced strong organic growth in Canada, particularly in Ontario, as we benefit from a pending turnover of a major tax roll in the province. The authorities are driven to resolve the majority of its current and new caseload for the 2016 taxation year in an effort to clear that backlog.

This led to overall higher volumes and some good settlements for us.

As Angelo highlighted, we also had good organic growth in the U.S. Additionally, SG&A extended their earn-out period, allowing us to improve margins by capitalizing on some acquisition synergies and cost improvements, including a new U.S.

organizational structure and investments in business development. And we also continue to have steady performance in the U.K.

which is, in the context of the current market challenges affected by the extended tax cycle, is really a great achievement. The integration of the Rates Recovery business that we acquired in August is going well, leaving us strategically positioned for the 2017 reevaluation cycle in support of our current growth initiatives.

Looking ahead, we firmly believe that our Property Tax business is poised for multiyear growth. We're solidifying our market -- our leadership position in the U.S.

and yielding great results, and our U.K. operations are well positioned to take advantage of this new reevaluation cycle.

The North American marketplace remains fragmented, and we're always in the lookout for opportunities to further augment our organic growth performance.

On the Valuation and Cost Advisory business units, we also delivered good organic growth, benefiting from revenue diversification in key geographies. Both business continued to be key differentiators in our Expert Services category, allowing us to touch real estate assets virtually at every phase during their life cycles.

In doing so, we do business with all the key real estate firms in the industry and access valuable data. It's an important feeder for relationships to the development community and owner-operators playing an important role as we work with the large institutional players around their infrastructure investments.

Our focus in North America will be diversify our clients and industry focus, and in Asia Pacific, we will continue to leverage that many global relationship that we enjoy.

And finally, Geomatics continue to be negatively impacted by the weakness in the oil and gas sector, but this has been offset by the strength of our overall results. As you heard in Angelo's summary, we are profitable in the quarter and would have reached $1 million in adjusted EBITDA if not for our severance costs.

We continue to operate -- optimize our operations, such that we can do well during a sustained market downturn and have the capability in place to serve our larger customers. When market dynamics improve, we feel very confident.

There's going to be a lot of good talent there that we'll be able to well positioned to supplement our current capacity fairly quickly. Dave Gurnsey and the team are continuing to do a terrific job in managing during this downturn.

As we look ahead, we remain optimistic about the long-term prospects of our business, supported by favorable market trends. The CRE market is becoming increasingly institutionalized and requires greater transparency, which will create growing demand for our leading analytics and software offerings and consulting services.

In a recent survey that we sponsored, the annual CRE Innovation Report, it underpinned the substantial market opportunity for our offerings, emphasizing the urgency for the industry to invest in Data Solutions to remain competitive. We interviewed over 300 executives with large assets under management, and it's clear this data silo challenge is one that not only our solutions is going to help improve, but on top of that, there's a demand for those solutions, and we'll absolutely make -- start making that report available.

I think it's a really, really good and interesting piece of evidence on our overall strategy. Importantly, more than 3/4 of the interviewed C-suite executives assigned a high priority to invest in technology-based processes, and 68% of them are stepping up their investments in this area in the next 2 years.

It's a great read, and we're well positioned to address that market.

With all I've said, I'd love to open it up. Thanks for everybody joining us, and I'll turn it over to the operator.

The Tax business, help me wrap my head around the 24% top line growth. It looks like the bulk of that would be organic.

It doesn't strike me as a business that should be growing 24% organically. So just want to make sure that I don't get ahead of myself and start straight-lining numbers.

So a little color on what went on in the quarter, I know this is a very, very lumpy business, and perhaps what you expect into next year.

Okay. Well, we've always talked about looking at the business on an annualized basis.

And the other factor that has to be considered, I think you're aware, as most of the guys are on the phone, is the effect of a new appeal cycle. In our largest 2 markets, Ontario and the U.K., there is -- coming -- we're coming into a period where we're going to be starting new cycles.

And what happens with that is there is a clearing effect that goes on through the end of the year and into the first half of next year. We are trying to settle appeals from the previous period.

So we're benefiting from that, particularly in Ontario. And what you should see is the opportunity to find ourselves in a pretty good position here through the next 3 quarters while we start up that next appeal season.

It was one of those things where, in this particular quarter, we benefited not only from that trend of those 2 areas. But we did a really good job in the U.S.

in terms of really getting that restructured and reorganized. We took costs out in a fairly significant way.

We're now 3 quarters into an organizational restructure, and we're gaining market share in those markets. And so the way I look at it is you're going to have quarters like we had as you work your way through this, and there is more chance that you have quarters like this when you have a lot of jurisdictions, but we're also executing really well.

And we're coming into a period here where we're going to get operational leverage as well. More geographies we have, the more appeals we have, the more clients we have and the more market share we have, we're going to see a continuing improvement in our EBITDA margins.

I think they're clearly high because the leverage that goes on when you have a big contingency quarter like we did is above what the -- what you might normally see because of the effect of these new appeal periods. But over time, we also expect our revenue to continue to grow, and we expect to gain operational leverage, improve margin over time.

And I think what I've also told you or I started to set up because you've heard me talking about this is that we're going through a modernization exercise on the Tax business, and we're implementing technologies for case management, for client management that will be part of that productivity agenda. So I don't think you can expect, and I don't want you to straight-line model this, but we definitely are making this business better, and then over the next 3 years, we'll continue to do that.

So that's kind of -- I don't know, do you want to add anything to that, Angelo?

No. I think that was fulsome.

Okay. I guess if I had...

It was definitely an above-average quarter, to put a punctuation on it, actually that good [ph].

Yes, yes. And so while I've got Angelo there, I mean, when I look into Q4, and this is more for the overall company.

But are you still -- is Q4 still the quarter where you pay the bonuses out, so we would see an increase in SG&A and some margin compression in all of the segments?

Yes. So well, it's really we are accruing throughout the year and then we allocate out to the business segments at year-end once we've finalized their profitability, performance levels, and that's when we finalize the bonuses and allocate it out.

Yes. Okay.

Okay, last question. If I had to nitpick on anything, Bob, I guess it would be good growth in Altus Analytics, but half the rate of last quarter and -- the last 4 quarters have kind of been $36 million and change.

Any color on when -- is that reflective of all the reorganization that's going on there? It's kind of hurt the sales efforts or -- I don't know, just what's going on there?

Fine. It's obviously a bigger baseline, so that's part of it.

There's some slight currency headwinds. But the reality is that we had a number -- one of the bigger drivers on that this -- in the last couple of quarters is that if you were to went back a year ago, we get a bunch of large subscription deals with companies like Cushman, CBRE and others.

And we would have thought that, that trend would have continued, but in fact, our license revenue has really stayed strong. And there's been a preference towards upfront in some of our larger contracts' transactions.

And so what you're seeing is by taking -- relative to our planning, by taking or having more upfront licenses, we're seeing improved margins in the quarter but offset against the recurring revenue growth. So that's probably been the biggest phenomenon.

I think the other thing that's going on is that we're -- we brought out a lot of new products like Voyanta. We're building new products for RVA, and there's a ramp-up associated with those products as we get them into the market.

So I'm not taking away my confidence in sustaining the Altus Analytics growth, but I think I even signaled to you and others that it's not going to be the 30% or 40% growth, right? I'd love to be operating in the 15% to 25% growth.

And we'll see some of those big transactions coming back. There's a couple that we're already working on, so -- but again, off a bigger base.

I just wanted to circle around on the Altus Analytics business. Bob, you mentioned that Europe and Asia Pacific have both been strong growth areas for new customers.

And I'm just wondering where is that growth coming from? Is it -- what was the decision-making process around a new customer in one of those markets?

And then I guess, secondarily, how would you classify the size of the opportunity for Altus Analytics -- I mean, ARGUS and Altus Analytics generally, I guess, in Europe and Asia?

Well, the sale in those new market is more of an enterprise type of sale. So in the software business, we moved.

When we sold DCF, it was a departmental sell. We started selling ARGUS Enterprise, are going to the business users, the CFO, the Chief Investment Officer.

And so obviously, they're lengthier, but they also come with a bigger sell at the end; when I think I've said this in previous calls, in a typical upgrade transaction, even with some of the larger customers, you might see $100,000, $200,000 type of sale first time. We actually benefit, I'll remind you, from those customers repurchasing and extending the use of ARGUS Enterprise in other parts of the organization.

Whereas when we do a sale in some of these new customers, they take longer, but they might come in at $400,000 to $600,000 level, right. And so an enterprise sale, not just ours, but in general, is like 9 to 12 months with a bigger payoff at the end.

Okay. And then in terms of -- are you able to quantify kind of what the market opportunity looks like in those segments -- or in those regions?

Well, like -- the way I've quantified it is we have -- when we started this, we had about 4,500 customers, all of which were on high percentage that were in North America and the U.K. And we have an opportunity to go after somewhere around 7,000 or 8,000 customers on a global basis, of which those new customers are going to be more enterprise, large types of deals.

So we think we have an opportunity to double our market on customers and significantly increase our market on users because we're increasing the number of users in our existing markets as well.

Great. Okay, okay.

That's very helpful. And then just going back to your comments around the 15% to 20% growth profile of -- 15% to 25% growth profile of Altus Analytics, what kind of -- in the absence of a heavy investment period, what kind of margins would you expect that to generate over the long term on a sort of "reverting to the mean" basis?

Yes. I -- listen, I've always talked about 20% to 30% margins.

And what you saw this quarter was at the high end of that, reflecting payback on our investments, reflecting a continuing ARGUS license upfront business. And I haven't moved away from that.

I don't anticipate that I would drop down even to 20% in terms of my margin going forward, and I think at some point probably absent any major investments, which we're still reserving the right to do but we'll try and signal them better this time, that we could see ourselves operating in the 25% to 35% over time. And you've seen us operate now at a fairly high level, not only in Altus Analytics, but you're seeing margin improved across the company because we're making some smart investments.

We're increasing share. We're operationally more efficient.

And I think the big news is 3 -- 2 or 3 years ago, it was all ARGUS, then it became Altus Analytics and now, it's Altus Analytics and technology-enabled services. So we're really reducing the risk on the company, making it more -- we've made it more than a one-product company and then we're making it more than a one-business line company.

Right. Okay.

Okay, that's great. I'll...

And I'll just put a punctuation mark on it because I've said it to you then I've said it to everybody else. I'm as excited about Tax and the CRE Expert Services in the next few years, what we're going to be able to do to bring technological innovation to those assets as I am to Altus Analytics.

We have a fairly exciting opportunity in front of us across-the-board.

It's actually Andrew in place of Richard. Just want to touch back on the international growth, particularly for Altus Analytics.

When you look at your revenue growth rate, how do you see that coming from your new sales team? So have you moved your sales team out there recently?

Or has this been a build that you have been working on in the past?

We have a really good team in Europe, like it's well established, really talented individuals. These are enterprise selling people.

We actually staffed up in Australia. We've always had a strong guy in Singapore.

So the -- what we're actually doing is we're adding people on top of an already established base of selling resources, and we're adding management talent as we go along as well. So it's not like we're starting from scratch in any of those markets.

We have good resources already established, and we're adding more capacity as we go along.

And could you potentially quantify the headcount build from a -- maybe a year ago to today?

Let me think about that. I could, but I'm not going to do it right now because I'll be just going off, but we'll come back to you with that, Richard (sic) [ Andrew ] .

Because what we've done in Altus Analytics is we actually now have integrated selling resource. So we just hired a couple of guys from -- in the last few months from IPD, MSCI that are really strong talent guys.

But we didn't hire them for ARGUS. We didn't hire them for RVA.

We hired them for Altus Analytics, right. And so when you got me on this road, I was thinking about ARGUS sales people, but we're changing our business model to selling the full line of products, Voyanta, RVA, some of the new capabilities we're coming out with.

Okay. And then just thinking about your -- the revenue growth, even including North America.

When you look at your split rate now from new customers and your existing base, do you have a sense of what that is? Would it be 75% new customers, 25% from your existing base?

Or is it 50-50? Any color from that would be helpful.

Well, the last time we reported, it was somewhere around 1,500, of which about 350 were new customers. And that trend started evolving.

As we draw down the number of U.S. customers that are on ARGUS Enterprise, you'll see that split moving towards new -- creeping up towards new customers as we go forward.

Okay. And then just lastly, when I look at the margins here, you said that it was pretty good for license growth.

And I understand how that would have boded pretty well in your margin profile when you think about a subscription being a drag. Just anecdotally, it sounds like you're thinking they'll be coming back down in Q4.

But in 2017, could you maybe help point us towards what you think would be a more normalized run rate for your margins?

I'm not sure it's going to come down in Q4. I mean, we've done -- we had set a budget in the -- actually, I'm looking at Angelo.

So we've had a budget and an expectation in the high single digit, low double digit for license revenue with a view that we would see continued bleeding over to subscription from some of the large enterprise customers, but we had a fairly big deal last quarter that was a -- that we try to direct them over to subscription, but they preferred upfront to -- surprising because this is the only industry that doesn't want to buy software on a subscription basis. So we significantly overachieved that on a year-to-date basis, and we think it's going to continue.

We may force it back to those numbers that I talked to by taking certain product lines into a more subscription model. So as an example, one of the things that we could do, I'm not saying we will, is only offer the developer product on a subscription basis as an example.

And as Voyanta comes up and becomes part of ARGUS, that will also start trickling up the subscription part of the business as well as that gets more embedded in the ARGUS Enterprise sales bag.

Bob, I wonder if we could look at the cash flow statement here. The company's cash generation, cash from ops has been really strong for the past 4 quarters.

And certainly, I would understand some of it is the Tax business is exceptionally strong. But if you look at the consulting business as a whole, are there steps that the company have taken that have changed how quickly you collect or any other changes in the dynamics that would account for the strong cash generation?

Michael, this is Angelo. So yes, we've, over the course of the last couple of years, actually, have put a lot more emphasis into billing and collecting.

And so we have dedicated teams that, really, that's all they do. And we have driven down our DSOs quite significantly.

So if you look quarter-over-quarter, we've had some pretty significant improvement, and that just create -- that just drops right into our cash account, quite frankly. So that's been a strong emphasis.

Okay. I'm glad to see it.

And then again at the strategic level, Bob, you have talked about bringing greater automation to the Tax business. Should we think of that as like a kind of 3-year project?

Or how do you look at it?

It will be a 10-year project because we're going to continue to invest right through not only Tax, but all these businesses. We'll continue to innovate not unlike the way I think about ARGUS, right.

There's a lot we can do. My goal on Tax uniquely, and we're not limited to Tax, and we've been working on it.

We've had a fairly good run at implementing things like salesforce.com, document management, data warehouses that are going to cause us to get synergy by applying the technology to get productivity of our consultants, increase the speed upon which we can do appeals, to collect data in a way where we can have a better win rate at a lower cost, and we're building a front end that customers can use to manage their workflow for their assets and interrogate their tax performance for their portfolios. And so all of those things are going to -- so you're going to create stickiness.

We're going to have productivity. We're going to differentiate, and we're going to innovate.

And the whole idea behind this, when I was talking about where we're going as a company, is to connect that back to our large U.S. customers, a differentiator where they can operate their portfolios on a North American basis and eventually on a global basis.

And so we see this as the natural evolution of our technology-enabled services moving to being integrated with data that allows a Chief Investment Officer or an Asset Manager to manage all of the different aspects of their portfolio on both the revenue and the expense side.

Okay. And qualitatively, it would seem to me that taxes, frankly, they're such a pain in the ass, and they're logistically very difficult.

I would think customers would be pretty receptive, and the tax consultants would be pretty receptive to automated processes here.

Yes. Hey, look, the way I look at it, Michael, is I look at what Real Matters has done for mortgage appraisals.

I look at the RVA team and what they did for Appraisal Management. And we're going to build a business that would allow our customers through us, through our managed service to manage their tax effectively.

It's not only with our -- sure, our consultants, but if they choose to use other consultants, we'll make that platform available to them, so they can collect that data as well.

Actually, this is Justin on behalf of Dan. So just, Bob, just so we have some continuity, in the past, you've talked about some migrations of customers to AE.

Do you have an updated number for us?

Camilla, would -- you go first.

Yes, it was...

We had in the script, and I -- you know what, I'll just -- before you go, we'll tell you what it is, but I deliberated on it because I'm really trying to create -- not create a view. I have a view that this company is going to be a lot more than ARGUS, right.

And so I think the number now that we're at is 1,700 customers on AE and 200 customers on AOD. So if you wanted to add them up, it'd be 1,900 customers now that are using some combination of ARGUS Enterprise and AOD.

Got it. And then also the last quarter, you talked about your partnership with Hightower.

Just wanted to see if there -- what the update on that was. And then also, just in terms of other partnerships out there, how they're looking and what kind of pipeline you have for those partnerships.

Yes. We got a great pipeline.

Hightower is going -- like we're doing lots of joint marketing. It's created some very positive attention for both of our companies, and we are -- we get the benefit.

I love the guys at Hightower, and we get the benefit of being partnered with a high-growth, highly innovative company, which works to our brand. They get the benefit but quickly growing customer base around ARGUS Enterprise, so it's a win-win.

We're talking to a bunch of companies in a similar vein to give them access to our ARGUS Enterprise client base, and -- but we're being selective in prioritizing around making sure that we're working with the right partners that are going to bring us eventually a nice revenue stream but also the right partners in the market relative to our brand.

Got it. And then just on the Tax business, you talked about taking costs out on the U.S.

side just because the margins are so phenomenal. What additional opportunities are there for more cost reductions there?

Yes. I -- we did a pretty good job.

We're on to productivity rather than costs. We actually with that like to add costs in the U.S., both organic and nonorganic, to create greater critical mass.

So we are seeing our pipeline in the U.S. do extremely well, and we're in build mode.

Got it. Last question for me.

Just yesterday, we heard from Ian and Warren, really good presentation, but what they talked about difficulty in getting executive buy-in. Bob, when you talk to customers, how do you see customers making their transition to becoming more enlightened about a data strategy?

So on Monday this week, I met with 2 of our largest customers and their teams, sort of 2 separate meetings, 10-plus people in each meeting, talking to them about our plans, our road map. And in both meetings, I was amazed to see they had a Vice President of Analytics and Strategy -- Portfolio Strategy, which is honestly the first time I've seen that.

And they have teams dedicated to this. So I think we're in transition on this process.

These are some of the larger customers in the world, so they're well down the road. They get the advantage.

They're looking at it from the perspective of benchmarking, portfolio weighting, understanding their performance, looking at expense ratios. Like they're on it, and they're excited about ARGUS Enterprise and Voyanta in terms of how they can use those tools to not only collect the data but operate that so they can make effective decisions.

So it's happening. People are buying the solutions.

They're excited about where we're taking the products. And that's part of the trend that I was talking about before, where although we report on ARGUS Enterprise customers, the exciting part of it is the resellers, the new users and new departments.

That is the phenomenal opportunity in the U.S.

Angelo, just question for you. The severance reduction, is that -- was that impacted both on Geomatics and the Tax business?

Or is that tilted mainly towards Geomatics?

No. The number that I read out was solely Geomatics.

Okay. And I think I probably missed that number, but you called out the charge that you expect in Q4.

Yes. So I said it would be a similar charge.

We did some reductions right at the end of Q3 and at the start of Q4.

Okay. And I guess, Bob, bigger-picture question for you on the analytics side.

As you pursue, like, international opportunities, do you see a longer lead time in closing some of these deals in, like, say, Europe versus the last [ph]? Are they more agnostic in terms of how they view technology in the CRE business?

No, it's actually a different phenomenon when you go into these new markets, right. The -- one of the opportunities for us is that we're highly differentiated.

We don't have a lot of competition. The problem with that is there's an education that goes on when you go into these new markets about the value of our solutions, right, which is classic enterprise selling.

And frankly, if we had a natural competitor, we'd probably be going faster, then all we'd be talking about is win rate. But as we go into these new markets, we're going in with experienced guys that call at a highest level, that are talking about the trends that you see in our report because those are real, but we got to educate these clients about why our products solve those problems.

So it's a whole different sales process versus going to people that have used DCF previously and migrated them into ARGUS Enterprise and then migrating use throughout their company.

Okay. And just a final one for me.

I don't know if you had mentioned in the past, but do you have a sense of -- or can you give us a sense of the breakdown in the ALEX [ph] business, what percentage is software versus RVA consultant-type revenue?

No. No because -- look, we're building a company here that is going to monetize data, software and services in a way that our customers will be able to consume depending on their needs, and they're all going to work together.

And we're pricing -- like so for example, we're giving Voyanta for limited use for free to many of our RVA clients to be able to operate that system. Why do we do that?

It creates stickiness and recurring revenue. We have high margins in that business.

It extends the moat, the differentiation, and we get them using the product and plan on marketing the use of that product beyond the limited capacity that we're given. It's a free form, right.

And so this is a hybrid model that's really fairly powerful. And the way we go to market and how we price and achieve our growth goals and margin goals will be unique almost in some of these largest customers.

And the more they take, the more we're going to give them. And we'll do that at a price point that will be different based on the relationship.

Michael, there's one more from Paul Treiber at RBC.

Just -- forgive me, I'm a bit late on to the call. The -- just looking at Altus Analytics, the recurring total revenue, it has sort of plateaued for the last couple of quarters.

Just looking forward, what do you see as the top catalyst to help reaccelerate revenue from these levels?

You're talking recurring revenue.

Yes, recurring. Yes.

So the business did well. We had a great license quarter.

We are starting to see the pickup of Voyanta, and what's going to -- I don't know what you -- what words you -- reaccelerated or movement is, we signed a couple of large RVA customers last quarter -- sorry, the last 2 quarters, of which are some of the biggest in the world. They've come on to our platform.

That's going to help. Voyanta is going to help.

We're going to force more movement to subscription revenue away from upfront licenses, and we're going to bring new products into the market to extend our overall Altus Analytics platform. And we're pretty excited about all of them.

The -- I mean, when I look back, I was just looking at my model last couple of years, and Altus Analytics has seen very good growth, I think nearly 40% in 2015, 20% in '16, could you help going forward level set in terms of what type of sustainable type of growth rates should we anticipate in this business going forward?

Yes. So what our directional top line growth that we're shooting for as kind of a target to work in, as I said earlier, is a 15% to 25%.

I'd say I'm being -- conservative is not unlike what I said when we talk about margin goals of 20% to 30%. We -- I think we have 1 quarter in '10 where we saw 20%, so -- 20% margin.

And so we like the idea of being a 20% to 25% growth company and a 25% to 30% or even 35% margin company over time.

Okay. That's helpful.

I just want to shift gears to...

That's -- by the way, that's at Altus Analytics, Paul. And you may have missed it, but I'm really excited about the modernization of taxes, the standalone technology-enabled services that has the same kind of profile of an RVA Appraisal Management business.

So we're going to -- with the -- give me a chance to reinforce it again, but we used to be a one-trick pony called ARGUS. We've turned it into Altus Analytics.

And now we have -- our Property Tax business is going through a full modernization with share and acquisition growth. And so we really want to operate across the spectrum here where we can flex productivity, get higher margins and grow across a multitude of product lines.

Okay, good to hear. The -- I just want to shift to the U.K., though.

I mean, so couple of the brokers out there have called out some fairly disruptive impacts in transactions in the U.K. Yes, have you seen -- I mean, you're a little bit removed directly from that market.

But have you seen any sort of uncertainty causing any delays in any of your business lines?

Not at all in our Property Tax business over there. It's solid, and we're coming into a new season.

And frankly, when you see interruptions like that, usually our Tax business does better. People start thinking about cost avoidance, so I feel pretty good there.

I think the -- on our ARGUS business, there's other things at play that are different than anything that's going to be caused by Brexit. And we have started the transition of the ARGUS Enterprise products onto -- sorry, the DCF or the, remind me, the old ValCap product onto ARGUS Enterprise, so we're working through that.

And I would say that the only thing that you're going to see some potential uncertainty is in the RVA business that we're driving over there, the -- there could be some slowdown in terms of migrating onto that platform, offset by the fact that when you have the kind of challenges, when you think about Brexit, it's really actually quite fascinating. All of the sudden, property values go down.

Revenue didn't change. Currency is impacted.

And so if you're running a portfolio that's a global portfolio, you're actually going to want to have ARGUS Enterprise in your environment to model the implications of all of those things. What is the revenue trajectory going to look like?

What should we think about in interest rates in that market? What does it mean in terms of currency relative to other markets?

And it really causes people to want to have the kind of tools and services they want. And we feel very strongly that, that will push the agenda on data and transparency that will be good for our business over time.

I think the only other thing that we're seeing from Brexit, part of the muting of the Altus Analytics business, in particular for ARGUS, is that we did have some currency headwinds caused by the changes over there. But business is good, closed some really nice deals last quarter, did so in Australia and Asia as well.

Listen, obviously the whole mood of our company is to really start driving towards improvement through the use of technology in all parts of our business. You'll see more of a cooperation across our company.

We're putting all the assets to work in a way that it could make a difference in this market, and we're pretty excited about creating immunity across all of our product lines. And I think the thing that I'm most excited about is the potential opportunity for that innovation in front of us and the risk of downside by having multiple successful lines of business, and really, that's the message I'd leave for this quarter, so thank you.