Altus Group Limited

Thank you, Michael, and good afternoon, everyone. Welcome to our Fourth Quarter and Full Year 2016 Results Conference Call and Webcast for the period ended December 31, 2016.

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

If we miss anyone, please contact me directly after the call. 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 also numerous risks and uncertainties that could cause actual results to differ materially from those set out or implied by such statements. These are all described in our annual filings on SEDAR.

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

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

Thank you, Camilla, and thank you all for joining us on the call and webcast this afternoon. I'll begin by saying that I'm pleased with our robust finish to the year as Q4 contributed to both top line and earnings performance.

Our businesses performed well throughout the year. Altus Analytics continued to grow its recurring revenue base and expand into new markets.

We continue to see long-term growth opportunities globally for our products in this area as data, analytics and software solutions serve a growing appetite in commercial real estate market. Our CRE Consulting practices also performed well throughout the year.

Property Tax had a particularly strong year in North America, and we see significant future market share growth opportunities in the U.S. and U.K.

Our Geomatics business had to navigate through some very turbulent times in 2016, but managed to finish the final quarter in positive territory.

I'll now provide a summary of our consolidated results, followed by a review of results by business segment, touching on both Q4 and full year results. In the fourth quarter, consolidated revenues grew at 3.9% to $115.3 million, leading to an annual growth rate of 6.4% to $442.9 million.

Excluding Geomatics, which as you know faced macroeconomic headwinds during the year, revenue growth was 8.6% in Q4 and 13.9% for the year. On an annual basis, excluding Geomatics, our organic growth rate was 11.9%.

Adjusted EBITDA improved by 13.6% to $22.1 million in Q4 and by 16.9% to $74.1 million for the year. Altus Analytics and Property Tax were key contributors to earnings growth in 2016.

EBITDA margins in 2016 improved to 16.7% compared to 15.2% in the prior year. Consolidated profit in Q4 in accordance with IFRS was $8.9 million compared to $6.5 million in 2015; and for the year, $14.3 million compared to $9.2 million.

Basic EPS was $0.24 for the quarter versus $0.18 last year and $0.39 for the year compared to $0.28. Adjusted EPS was $0.38 in the fourth quarter, up 22.6% from $0.31 and $1.15 for the full year, up 17.3% from $0.98.

Moving onto our performance by business segment. Our Altus Analytics business continues to put up strong numbers.

Revenues were up 15.1% to $42.2 million in the fourth quarter, finishing the year up 20.2% at $151.5 million. Recurring revenues, which account for approximately 74% of total Altus Analytics revenues increased by 11.2% to $29.1 million in the fourth quarter, and by 23.4% to $111.9 million for the year.

Overall, the strong performance in 2016 was driven by higher ARGUS Enterprise sales, both license and subscriptions, higher maintenance and increased Appraisal Management engagements. Adjusted EBITDA was also higher, up 40% to $11.8 million in Q4 and up 35.3% to $41 million in the year, reflecting increased revenues and cost savings from restructuring activities undertaken during the year.

Our annual adjusted EBITDA margins improved to 27.1% compared to 24%. Recall that the U.S.

and U.K. currencies at the start of 2016 provided us with tailwinds in the first half of the year, a trend which reversed in the second half with the declining British pound and flattening U.S.

dollar. Overall, changes in the exchange rates impacted revenues by negative 2.6% in Q4 and by a positive 1.1% for the full year.

On adjusted EBITDA, the impact was positive 0.8% in Q4 and positive 2.5% for the full year.

Commercial Real Estate Consulting revenues increased by 4.4% to $61.8 million in Q4, finishing the year up 10.3% at $247.3 million.

Our Property Tax business was a strong contributor. It was up by 12.9% with $151.2 million in annual revenues.

In Q4, Property Tax experienced stronger performance in the U.K., but lower revenues in Canada due to timing of case settlements and a tougher compare on one-time large contingency settlements in 2015.

The Valuation and Cost Advisory practices also performed well, up 5.8% to $25.3 million in Q4 and up 6.5% to $96.1 million for the year. The revenue growth drove a 36.2% improvement in annual adjusted EBITDA for CRE Consulting, amounting to $52.2 million.

Annual margins were 21.1% compared to 17.1% in 2015.

CRE Consulting adjusted EBITDA in Q4 was down 10.6% to $6.5 million, lowered mostly due to a 15% decline in Property Tax, reflecting the higher variable compensation in the quarter as a result of much stronger annual performance. Changes in the exchange rate against the Canadian dollar affected CRE Consulting revenues by negative 2.1% in Q4 and by negative 0.2% for the full year.

The impact to adjusted EBITDA was positive 1.3% in Q4 and negligible for the year.

And finally, at Geomatics, as was the case with the previous 3 quarters, fourth quarter and full year operations were adversely impacted by the ongoing market challenges brought on by depressed oil prices. Revenues decreased by 24.9% to $11.5 million in Q4 and by 32.9% to $45.1 million in the full year.

Adjusted EBITDA declined by 84% to $185,000 in Q4 and finished the year down 108%, negative $868,000. Included in adjusted EBITDA for the quarter and year are employee severance costs related to our headcount reductions were $0.5 million and $1.6 million, respectively.

Corporate costs in 2016 were $18.2 million, higher than $15.3 million in 2015, mainly -- mostly due to increased headcount in support of strategic initiatives and information technology and talent management and higher variable compensation. However, as a percentage of revenues, corporate costs remain steady at about 4%.

Also at the end of the year, our balance sheet remained strong with significant flexibility to support future growth. Our bank debt stood at $117 million, with a funded debt-to-EBITDA leverage ratio of 1.53x compared to 1.92x at the end of 2015.

Our cash position at the end of the year was $43.7 million with $83 million of available borrowing room under our credit agreement. Our business continues to show strong cash generation.

Cash from operating activities rose 40% in 2016 to $67.2 million.

Finally, we continue to see improvement in our DSOs, which declined from 82 days at the end of 2015 to 74 days by the end of 2016.

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

Thanks, Angelo, and thanks for the summary. Good afternoon.

As you just heard, 2016 was a strong year of accomplishment for Altus Group. Our progress was substantial and further solidified our track record of growth, not just to market share gains and numerous client wins, but also on our key financial metrics.

As one measure of success, we sustained strong double-digit top line and adjusted EBITDA growth in our core Altus Analytics and CRE Consulting segments, with solid consolidated top line and earnings growth and expanded EBITDA margins.

At Altus Analytics, we continue to make excellent progress against our strategy as validated by the continued double-digit growth with annual revenues now scaling over $150 million, of which over $110 million are recurring. We had an extremely productive year.

In addition to our reorganization and integration activities, we also successfully launched 2 upgraded versions of ARGUS Enterprise, an enhanced ARGUS Developer and launched a new hosted product, ARGUS On Demand. Our expanded offerings helped increase sales and drove strong customer growth in our software segment as we more than doubled our ARGUS Enterprise user base to over 2,200 clients, including 240 on ARGUS On Demand and over 1,000 clients for ARGUS Developer.

We're also seeing a strong pickup of our Appraisal Management offering, where our benchmarking and attribution analysis and data analytics tools were strong in the year. These are all incredible milestones with no better validation than to see such strong pickup in the market.

Some thoughts on 2017 for Altus Analytics. Based on our current market trends, overall we anticipate greater perpetual license sales versus subscription sales in 2017 versus 2016 where we saw a number of large transactions with some of the major brokerage firms who prefer that pricing model.

Overall, what we saw is that the majority of our clients still prefer to pay the upfront license amount. However, we should see towards the end of 2017 and into 2018 more subscription activity as our ARGUS On Demand product evolves and as we bring other capabilities to the market.

Maintenance revenues are expected to remain healthy, supported by increased license sales. Recall though that last year maintenance revenues also benefited from a price increase on DCF, which will no longer be supported by mid-2017.

As a result, we expect to see more DCF customers converting on to ARGUS Enterprise.

Our Appraisal Management pipeline remains strong, and we continue to increase sales both from existing customers, adding more assets to the platform or increasing the frequency evaluations and for new customers who are actively seeking data solutions. And expansion into Europe remains a key focus.

We also expect to see good performance from our other recurring revenue sources, including our Canadian subscription market data offerings, where we're expanding to include investment transaction data from Ottawa, Calgary, Edmonton and Montreal, and this will complete our all major markets coverage as we build our national platform and sustain our standards position.

ARGUS On Demand, which has already attracted over 300 customers for ARGUS Enterprise and Developer in its first year since being launched in early 2016, we're really, really pleased with the pickup of this product, and I think it's a bellwether on future cloud-based solutions for ARGUS Enterprise. And we are absolutely evaluating a number of managed service offerings to drive more value and stickiness for our clients, including the management of our Voyanta product in the market.

Nonrecurring revenue growth will continue to be driven by license sales and related services from new customers and existing customers upgrading to ARGUS Enterprise, adding incremental licensing or adding new models. This is very critical in the North American market as we continue to expand our customer base, and it has been a big -- a consistent key pillar of our growth.

We're actually seeing a trend, where customers initially buy a portion of their overall requirements and then evolve later to add functionality and/or more users, both on a North American basis but also on a global basis as well, key part of our strategy to enter new markets.

We also have plans for increased contribution from Europe, where a good portion of our sales there are to net new customers and are typically larger enterprise contracts. There is a significant opportunity of new customers and untapped geographic markets and industries segments like banking as one example.

Again, expansion in Europe remains a key priority, specifically for our software solutions, representing much greenfield opportunity as a majority of the EU markets are still using homegrown models. We're in the process of transitioning our legacy ValCap users onto ARGUS Enterprise in the U.K., following the model that we ran in the U.S.

to move DCF customers to ARGUS Enterprise, and we expect to see a ramp-up of upgrades in the future quarters. We've had a couple of rounds of functionality that we've delivered to that market and the pickup has been positive.

In the medium term, increased contribution from Europe will be important to future growth rates for our software sales and for Appraisal Management.

Although, it's generally harder to sell to new customers or to a market without competition, as that entails creating product awareness, we believe that the market trends are in our favor and our suite of solutions is tailored well to address these unique market needs.

With international growth comes geographic revenue diversification. So it's important to highlight increased sensitivity to currency changes.

As Angelo mentioned, in 2016 Altus Analytics benefited from currency tailwinds, especially at the start of the year. FX movements could be a factor in our comparative performance.

And based on recent U.S. dollar and British pound exchange rates, we could see some headwinds in the first half of the year when adjusted for Canadian dollars.

Recall also that Q4 is typically one of our strongest quarters and we had a very good quarter in this Q4. Usually our best quarter for software sales and our Appraisal Management practice tends to experience some seasonal peaks around Q2 and Q4 associated with some client practices of biannual and annual appraisals.

Overall, we feel good about the next phase of growth for Altus Analytics. Our sales pipeline remains strong and global demand for our offerings is on the rise.

Altus Analytics continues to have a long and global growth runway ahead, and we will continue to invest in this opportunity, particularly in the modernization of our existing products, in development and sales capacity, and in new products and new offerings. We have a very clear line of sight on returns, and we will continue to invest responsibly to sustain our market leadership and deliver future profitable growth.

Turning to CRE Consulting, Property Tax, Valuation and Cost Advisory. They continued and demonstrated market leadership in their respective practices and delivered strong top line and adjusted EBITDA performance.

Our Property Tax group had a particularly strong year with impressive 44% earnings growth and robust 27% annual EBITDA margins. In Canada where we have a very strong market share, we benefited from a pending turnover of the Ontario tax rule as the authorities diligently cleared their backlog in advance of the new cycle that starts this year.

In the U.S., our restructuring efforts allowed us to unlock more synergy and in the U.K. we held steady and got organized for their new cycle, which starts in 2017.

Property Tax, as I've said before, continues to represent an attractive growth area for our business, both in the U.S. and the U.K.

and as we modernize in Canada as well. We'll continue to augment our growth with acquisitions.

Organic growth will be driven by market share gains, increased critical mass, enhanced productivity as well as through innovation and technology. And we remain focused on acquisition opportunities, particularly in the U.S.

since this is such a fragmented market.

Directionally, 2017 is expected to be a strong year, and we're coming up on 2 big cycles in Ontario and the United Kingdom. I remind you that the front end of the new cycle is typically characterized by a ramp-up period, preparing for cases and filing appeals before settlements are made and before we start recognizing contingency revenue.

We also have an opportunity to close out files from the previous cycle, but the availability of the authorities to work with us in those appeals is always or sometimes challenged at the beginning of a cycle. Also for comparative purposes, given the strong U.S.

and U.K. currencies at the start of 2016, we may see modest foreign exchange headwinds in the first half.

Long term, Property Tax has significant potential for innovation and modernization and I'm very excited about this opportunity. I'll take a couple of minutes on it.

The first part of our growth in Property Tax is to significantly increase market share in the U.S. and U.K.

In 2016, we made substantial progress in the U.S., whereby our estimates, we became one of the top providers in the market. As you know, that market is still fragmented, so although we're in the top 5, we will continue to pursue market share gains by growing organically and by acquisition.

The second part of our growth in Property Tax, which is underway now as well, entails modernizing it with technology, so we are strategic in how we capture the vast amount of data that we collect through our assignments and through other parts of our business. It's expected to help improve productivity and drive enhanced client value through improved appeals.

Once we achieve increased critical mass and scale, the third part of our growth will have a data component where we envision new analytics capabilities to leverage data to give clients insight and forecasting capability for some important operating metrics.

An example, in the Property Tax Consulting business, we prepare appeals for our clients with as much data as possible around comps valuation and other write-ins in order to have the strongest possible case and increase the odds of obtaining a favorable judgment. The more data we have to leverage in tax appeals, the bigger the competitive advantage and the more market share we will achieve and the more data we have to leverage.

We see an opportunity in the long term to leverage all of this data on a Web-based platform to identify opportunities for our clients, to maximize their asset and portfolio management, and even to do tax forecasting or other operating metrics. This would drive a lot of value to our clients, considering that Property Taxes are one of the largest operating costs in commercial real estate and owners of multi-asset, multi-region portfolios have very complicated tax situations.

Still early days, but it's an example of how our expert services will increasingly integrate with our Altus Analytics offerings.

Valuation and Cost Advisory business units also derived good organic growth, benefiting from revenue diversification in their key geographies. And looking ahead, given their operating environments and existing market share, we expect growth will be flat to moderate in the near to medium term.

Both businesses continue to be key differentiators in our expert services category allowing us to touch real estate assets virtually at every phase of their life cycle. In doing so, we do business with all the key real estate firms in the industry and gain valuable data.

Finally, Geomatics continue to be negatively impacted by the weakness in the oil and gas sector, thus impacting and offsetting the strength of our overall results. But there is optimism ahead, and we believe that the cost-cutting initiatives and headcount reductions undertaken in 2016 should result in improved profitability this year.

Although there are some preliminarily indications that activity levels are picking up, we do maintain a cautious outlook for now. Dave Gurnsey and his team are doing a terrific job managing through this downturn and also finding innovative ways to serve our clients.

We just announced a partnership with St. Francis Xavier University to collaborate on their patented vehicle based technology that allows for detecting and mapping the emission of ground-sourced greenhouse gases, which has become a regulatory-compliant activity.

This agreement gives us exclusive worldwide commercialization rights, and we will be offering this as a service to complement our geospatial data management solutions.

We're going to open up the line in a minute for questions. I just want to, again, take a moment to recognize the hard work and commitment of every one of our employees who contributed to the significant progress in 2016.

We have an incredible amount of talent on our team, and I'm so excited about what we can accomplish together.

In addition to the many financial and operational accomplishments, 2016 was also an important year in further enhancing our information services platform, a model that captures the delivery of analytics, applications and services. And this best encapsulates how we see ourselves going forward and how our clients increasingly see us and will work with us.

Our business model will continue to shift more to information services, whereby we will increasingly leverage data to deliver insights and outcomes to help our clients maximize the value of their real estate assets and portfolios on a global basis. After all, we're not just selling products and services, we are solving problems for our clients.

We thank you for your support. And now, I'll be happy to take questions.

Bob, I just had a question on the Altus Analytics group, just trying to get a feel for the addressable market here and wondering if you could help me out in understanding how penetrated you are in your existing base with the products in that group there.

Well, the way you got to look at it is that the first wave of modernization was to move DCF in North America to have the largest asset managers take ARGUS Enterprise as a standard. We feel, not only in North America, but now more and more on a global basis that we've achieved that.

As I was saying before, that doesn't close out the opportunity. Now we're going back to the largest companies and we're selling them applications, we're pushing users into new market.

So even though we -- on a customer basis, we've done a really good job of setting the standard using ARGUS Enterprise, there's still much traction ahead to expand the use of ARGUS Enterprise for another number of application areas, plus it's our plan to build products that extend that capability into their network widely. We also talked about taking functionality into banking in North America, as an example.

So we really believe that we're just getting started in terms of application functionality like budgeting and sensitivity analysis, investment management. So we got a long runway on applications in North America.

On top of that, we came out with the ARGUS Enterprise product just last year -- sorry, the ARGUS On Demand product last year. We picked up 300 customers.

The volume and activity as a precursor to coming out with cloud-based ARGUS products is positive. And I really believe as we -- as I talked about in the -- in my comments, that we're going to see fairly interesting volume pick up in the second half of the year going into 2018 with products like ARGUS On Demand.

Our plan will be to come out with more products like that going forward.

In the U.K., we literally are just getting started on the ValCap migration, which is going to give us another wave of growth similar to what we saw in the U.S. We've had 2 releases of functionality for the U.K., not unlike ARGUS Enterprise in the U.S.

when we started, there was a fair amount of resistance. But in our last meetings over there, we're getting really, really good traction.

I'm excited about it. Then I got white space in Europe and white space in Asia, which represents another 35%, 40% of the market that's untapped.

So that's the way I'd answer the question for ARGUS.

Okay. And then I think you commented in your formal remarks on the recurring piece picking up next year.

Would it sort of get back to the point that, I think, we had a few quarters back when it was in the 30s or 20s, or should we sort of reset that recurring revenue growth more in the teens here?

Yes. I think our plan would be over the next couple of years to not leave it up to our customers to select upfront license solutions.

More and more, we're going to try and bring out products like ARGUS On Demand that are of a subscription variety, and in our roadmap we envision that, that would be the case, not unlike Voyanta, some of the managed services offering that we want. We're going to try and move away from a more traditional license type of environment with products and business models that feature recurring revenue coming out of 2017.

Okay. And one last one from me on the Property Tax side, should we sort of make this assumption that the bulk of the growth here going forward in the short term is likely going to come from acquisitions based on your commentary or otherwise?

Well, you get -- that will be a part of it, but what you get is a natural growth over time of assessed values with a fixed contingency rate. One of the growth areas is that, over the last 3 or 4 years, we've been actually featuring more contingency as a percentage of our overall revenue.

It was about -- in Canada as an example, it was about 50-50, 3 or 4 years ago, now we're seeing it more like 70-30 contingency and that ends up with a better result for us. And so we can get growth from a contract change.

We think we can get growth from national mandates, we've just won a couple here in Canada by replacing some of the regional players. We think that trend is going to continue.

We can get growth in EBITDA through productivity. So we can do this on our -- on the basis of even a mature market like Canada, but clearly acquisition is going to be part of it.

Just to circle back on tax, did the quarter play out as expected internally? Or was it a little weaker?

It's all -- because of the end of the cycle, beginning of the cycle, it's always hard to predict. I think it came okay in Canada.

Angelo, why don't you -- you look like you're ready to answer this question.

Yes, I -- we always have puts and takes, as you know, regionally. The U.K.

actually performed well, a little higher than what we had thought. In Canada, we had and we had talked about this previously, we had a really good fourth quarter last year with some one-time type contingency settlements in Alberta.

And so that was just coming off a tough compare. The U.S.

performed well as expected. There's always a bit of seasonality as well, Yuri, as you know, particularly in the U.S., where the last quarter tends to be softer, the last quarter of the year and then first quarter and then it sort of ramps up.

So you get a bit of that kind of bell-shaped curve. And so we experienced that.

So I'd say that overall it was a sort of steady kind of quarter overall and sort of hit expectations.

Okay. And Bob, just on the kind of your '17 outlook, am I kind of reading you right in hearing kind of flattish revenues and maybe lower margins as the contingency work is kind of going to be a little ways away?

Are you talking tax?

Yes.

Okay. I think the front end of the year is going to continue to be tough to call.

And having said that, my guess is that there's going to be a little bit more volatility throughout the year. So for example, just to understand that for everyone on the phone.

At this time of year, we're absorbing a lot of expense on getting ready for this new appeal season. In some of these markets, there is a race to getting organized, right?

But the flip side of it is, if the authorities are available, we're trying to close appeal. So the volatility comes out of the size of case, the number of activity, the availability of the authorities to close off historical cases.

And so it's going to be a little bit choppy here in the front end. I think in the back end of the year, I'm actually fairly positive.

I think both the U.K. and Ontario, which are real drivers of -- the real anchors of our overall growth are really nicely positioned for a strong performance.

We'll update you as we come out of the second quarter on that.

Okay. Bob, just on the balance sheet is in great shape, you've been talking about M&A, where are we -- what are the capital allocation priorities here for '17?

And where are we in -- what's your M&A pipeline look like right now?

It's okay. I think we do want to do work in tax, and we are having some conversations.

You might have seen the Bloomberg article that was flying around, that even kicked up some opportunities that have us in a position where we're having really good conversations. But you also know, Yuri, that we are going to make sure we get it right on culture, price, place in terms of our overall strategy.

So I feel like we're getting positioned on a couple of nice deals but we're only going to pull the trigger if it makes sense. And then there's some interesting other ones in other parts of the business that we're tracking.

Look, we want to put our capital to work. So the answer is, I'm not going to be silly about it, but I expect to do some acquisitions.

Just wanted to circle back around on the Altus Analytics business. Bob, you talked about a couple of moving parts in terms of the way you're selling business and what customer demand looks like.

And how you're looking to sort of maybe shift that in the back half of the year or towards the end of the year, at least that's how I interpreted it. Can you just talk a little bit about what that does to the revenue growth and margin profile through '17 and then maybe exiting '17 and into '18?

You want me to talk about it in a perfectly optimal world or...

[indiscernible] world.

I'll let you guys do that one. Stephen, here's the way I'm thinking about it right now.

We still have some work to do to make ARGUS Enterprise a franchise product, particularly in markets out of the U.S. We feel like it's over in the U.S.

We feel like we're well on the way in the U.K. based on some of the deals that we've won.

And we will continue. We've got a really strong sales force to continue to sell the functionality available on ARGUS Enterprise and increase the number of users.

But what's going to happen is, if you think about in the pyramid, while we're doing that with the largest customers, high -- the global large customers plus the large enterprise U.S. customers, what we're doing is, we're going to use AOD and other functionalities go forward to sell to mid-market.

And so in a perfect world, we'll execute perhaps as a percentage at a lower overall revenue from our U.S. clients on a relative basis, that will get picked up in the U.K.

through our transition cycle on ARGUS Enterprise, and we're going to execute in these new markets, the rest of Europe and Australia and Asia. I'm really believing right now that what's going to happen is, we're going to really direct our mid-market customers in the U.S.

onto ARGUS On Demand more and more. We will force or at least motivate our mid-market and small customers to go to ARGUS On Demand.

And obviously, that will come at a lower growth rate just because of the nature of that agreement. But it should be balanced in a optimum world against the efforts to sell into our base in the U.S.

and to start what we're doing in the U.K. and the rest of the world.

That would be optimum. And then when we talked about managed services and Voyanta, we're going to try and sell those as recurring revenue subscription-based models and that will also help as we go into 2018 with new product functionality, that will also cause higher recurring revenue growth rates as we go forward.

And so, if I do this nicely, I use ARGUS Enterprise to sustain overall growth and I start amping up going into 2018 my current recurring revenue growth.

Okay. That's interesting.

And I guess, when you think about the U.S. and you think about the support for DCF gets turned off in the middle of 2017, I guess.

Have most people already made that conversion? Or do you expect to see sort of a wave of conversions in the back half of the year?

I think in our large accounts, top 100 customers in the U.S., we got a high percentage of them already made investments, but -- in ARGUS Enterprise. But, I think, I covered that off in my comments, and just to reiterate, once they buy something over -- and I've said this before, over 60% of our large customers have repurchased, and we also have an opportunity to go and sell more functionality.

So the big thing we're going to do is, go to these customers and show them how a global implementation of ARGUS Enterprise is going to be advantageous over, for example, what most people have done is a limited North American rollout.

Okay, that's great. And when you think about Europe, which you highlighted it in your prepared remarks, how much of your current business is in Europe?

I mean, I'm just trying to get a sense as to what the relative size is of your current base? And what that could look like in terms of a growth opportunity?

Yes. It's still in the 10% to 12% roughly, right, base.

So it's all -- it's upside. I mean, the big -- look, if we -- sorry, when we execute on the ValCap upgrade, we're going to come at Europe from 2 perspectives: 1, bringing U.K.-based large asset owners into Europe, so they can look at their portfolio; and, obviously, we're going to bring our U.S.-based customers over into Europe.

The basic value proposition of ARGUS Enterprise is to do investment management on a global basis. We've come out with the currency and valuation functionality to be able to do that, and now it's incumbent on us to educate these customers to get the full value of ARGUS Enterprise.

And by locking down these large global customers, they end up introducing the standard in that marketplace with the service providers and other partners for the product, and we're absolutely seeing that more and more.

Okay. And then just finally, on Geomatics, you had a couple of quarters now where you have taken some costs out of the system.

Is that -- in terms of strategy going forward, is there more -- are there more costs to be taken out of the system? Or is it more you've stabilized the cost structure and now you're waiting for potentially a rebound in activity?

Stephen, this is Angelo. So we did take cost out twice last year in 2 tranches.

And we're sort of at a level right now given the current business that we see, we're pretty much done. And if business actually picks up, I mean you've sort of seen where the price of oil is, it's actually at the higher end of the range that's it's been in the last kind of 6 months now.

And there is a little bit of optimism in the market. I don't want to talk too highly about it because it's early days, and we're heading into sort of the low season right now with the spring break up.

But I think we -- from a cost structure, we are there, and we do have opportunity to sort of continue to improve the utilization of what we have with increased volumes. So hopefully that answers your question.

Last quarter you talked about hitting an internal target of about 15% to 25% in Analytics, does that still stand?

Yes. I thought it was before that, but I did reiterate it in the last quarter.

Look, here's how I'm thinking about it for this year. We really like the opportunity in Altus Analytics.

We have more products in the pipeline. We have the DCF conversion in the U.S.

to work through. We really feel positive about the first half, and I personally believe even with the large enterprise companies that that's going to drift into Q3, where we're ramping up AOD, and particularly we think that's going to start cranking up in the second half, which -- but remember, if we start directing customers on to AOD, it could create some muted performance.

The big determination of how the year drives is how we do on Enterprise deals in the U.K. That's going to be a big driver of our growth.

We nailed it in the second half. Or if you look at our nonrecurring revenue, we had a big ARGUS quarter, reflecting the pending DCF transition.

We expect that by the time we get out into the second half of this year, that the U.K. is going to start seeing those kind of transactions really ramp up.

And to answer your question, the thing that's only got me really anxious is currency. It's sitting out there in some markets as -- where we had benefit in the last year, it's working against us a little bit.

So I feel good about double-digit growth this year, and I'm really thinking that it could be choppy. We might see some real range activity depending on the time of the year as we go forward.

So whereas previously we felt fairly strong about ability to do that on a quarter-over-quarter basis, now we feel that we would give guidance on an annual basis towards double-digit growth. And I could see quarters that get to the outer bounds of what I've talked about in the last 6 months.

Okay. That's helpful.

And then on the margins in Altus Analytics, you've obviously had 2 quarters of really strong margins, is that sustainable? Or is that primarily driven by all the licensing revenue that you saw coming in?

It's pretty variable based on the license revenue that came in. We really had strong license growth, maybe applaud for our software team, they're just getting really good at selling value.

And so the transactions are bigger, the volume is up, it's still a good story. That's why I feel fairly good about the U.K.

in the second half, like our team is really, really strong. We just put a new leader in Europe.

I think the big decision for us as we go forward on margin is, how much we want to invest in market opportunities that we see, like we believe that there's real opportunity to bring product into the market that we can sell to all of our customers.

And so what we're going to try and guide ourselves on as we go into the second half of this year is, not unlike you, what's the performance going to look like and how much do we want to double down on investment in terms of new products to bring into the market. And that's the wild card on margins.

We're not -- we're feeling pretty good about them right now. We think we're going to have strong license growth, but as we make the turn in -- going into 2018, man, there's just some incredible opportunities.

And trying to get that balance, like I have before, between a really nice balance of license growth and EBITDA in a certain bound, we are really going to take a hard look at that. It's not something we do imminently, it's more back-end loaded.

And I'm -- it's a long way of saying I'm tempted to invest more than I have done in the past, but I'm not quite there yet. In the short term, I feel good about the margin.

Okay. Let's speak about the new products.

You talked about some of these tax consulting modernization tools, when can we expect that to start generating revenue?

We're doing some rollouts in markets right now. We've won some business with customers that are buying into the model.

We're seeing the value of cross-selling with Altus Analytics, where the customers see us differently. So we're seeing the preliminary benefits of some of this work, even though it's in just slightly beyond prototype stage.

So I just have a couple of follow-ups to some of the previous questions. First off, on ARGUS Enterprise and the rollout in Europe, and also the conversion in the U.K.

that you're expecting. Is this going to require big investment in sales and marketing?

Or are you able to leverage what you've learned in the U.S. market in the past overseas?

I'd say no in simple terms, like we got a really strong team over there. As we said, we brought a new European leader in.

The team over there performed really well last year. If anything, we might add -- we may add some capacity in Australia and Asia, but we got a couple of different ways to do that, that we're looking at would be interesting to give us more capacity there, but I don't see sales and marketing -- actually I should say on marketing, we've really ramped up our marketing in the last year.

We've dedicated more resources to the brand and to the activity, but we've done it in a reasonable way. We just restructured our business, and may -- instead of trying to do marketing across 6, 7 different business units, we're way more focused, we're changing the brand, and we've done that in a fairly economical way.

But our returns on and visibility of the company is really, really ramped up. So, no, I don't think investments in sales and marketing are going to cause any kind of cost escalation this year.

Got it. And then on the conversion or the push for ARGUS Enterprise in Europe, are you expecting to see the same kind of resistance to subscription licenses versus perpetual as you have here?

And what's kind of causing that resistance in general?

So it's actually an interesting question. You know what, we're not going to fight it so much on ARGUS Enterprise proper, because it got contracts in place, and we can leverage those contracts into the market.

It's more how we bring new capabilities like Voyanta, ARGUS On Demand and others. We're going to try and migrate that naturally.

And it could be a smoother way of going into the market. But to answer your question, why do they prefer upfront licenses?

I'd say, it's amazing to me. These guys are so, so focused on doing business the way you buy real estate.

And if they can imagine that the NPV on upfront license is lower than the subscription, they're going to take it up front, number one. Number two, IT departments and real estate are, in general, behind the market.

You've seen some of the studies we've done on the use of technology, whereas in financial services there's mandates that they won't buy in many banks' upfront licenses. You don't see that anywhere in real estate.

Having said that, we're seeing some turnover in some of the larger global real estate companies where there is some evidence that we're starting to see a little bit of a turn, but it's definitely a bias towards upfront licenses.

Got it. That's helpful.

Then on the Tax business, you mentioned bringing -- the option of bringing data and leverage data in a Web-based platform in your Tax business.

Yes.

How does this change the growth profile and the margin profile for this segment of the business? And are you willing to kind of give bookends like you have on the Analytics business for your tax business?

I'm definitely not ready to give bookends like I have [indiscernible]. No, it's actually -- and sometimes reporters don't get it right, but I said in the - I don't know if you guys saw the Bloomberg interview.

I said at the end, if I could -- I sort of got quoted as saying that if I could pick one business, it would be Tax, and what I had to do is come back in the company and tell everybody that I love all my children. But honestly, in terms of modernization, innovation, the use of file management, the ability to take data from other businesses, we're incredibly positioned to innovate in that business and we think we're really good operators.

So we think we can really go after share. And so, I love the upside of the business, but no bookends right now.

Okay, fantastic. And just on the managed service side.

You mentioned managed services in both Analytics and the Tax business? How big should we think about this in terms of the mix?

It actually follows on to the question about why do people in the real estate industry want to buy upfront. It's amazing to me.

With all of our advanced products, not only ours but some of the new companies that have come into the market, how dependent they are on a supplier to implement and manage these solutions, to operate them. And even the largest companies in real estate have underinvested in technology.

And so we have observed that one of the barriers of some of these early-stage companies of being successful is they sell these complex solutions to these real estate companies and they never get them off the ground. They fail on implementation.

If they get through implementation, they're not good at managing the process and they never get the returns on it. And if you think about our Appraisal Management business, where we've introduced things like Analytics and attribution and we're moving the capabilities like daily pricing, the reason that, that works with so many large customers is we manage the whole process.

And so what we've come to conclude with products like Voyanta -- and there's other products that we're looking at, including in these managed services offering, that if we operate them in an expert services environment, there is an opportunity to really create value for our clients and differentiate our offerings in the market. And not unlike Appraisal Management, if the customer sees the value, they'll pay a premium for that capability.

And if we can do it where we implement on their behalf, there is a real opportunity to sustain an interesting market growth and solve the basic problem for our customers.

Most of my questions have actually been answered already. The only small item I'm curious about would just be on Geomatics side.

Would you guys have much exposure to pipelines to the extent that there's new pipeline construction potentially going to happen in Western Canada?

Yes, Maggie. This is Angelo.

We do have exposure. It's not the major focus of ours, but we do have exposure to it.

And what happens when you start getting activity, it actually kind of, sort of, raises the tide for everybody when you start getting even major pipeline work because it soaks up resources. And particularly right now where there has been a lot of cost out and downsizing, if you get some major activity, it could be beneficial just to sort of utilization rates and stabilization of pricing and so on.

So whether you're directly on a major pipeline project or not, there is spin-off benefits for just the industry.

Just in regards to AOD and any of the new subscription products that you are planning, would you consider providing bookings to give investors another piece of insight? And then also, would any -- like would any of AOD or other subscriptions, will that flow through deferred revenue?

Or is it purely on a monthly billed basis?

I'll do the first one and then, Angelo, you can do the second. At some point, I think so, Paul.

Like if we -- we've got a number of different activities that we're planning as we head into 2018, like my goal, just to reiterate, is to sustain good growth, finish the job on ARGUS Enterprise, but then really favor new product introductions around more cloud-based, modern subscription-based agreements. And if we do that, although we may see some pressure on the top line growth because of that transition, we're going to do that by finishing the job on ARGUS Enterprise, right?

And on the flip side, as we bring these products out, if we get any kind of critical mass, it would be good to do that. And frankly, I'm proud of the bookings growth that we're enjoying in ARGUS On Demand.

It's a precursor. It sets up this transition that I'm talking about, in a very inexpensive way.

The eventual goal, Paul, and I'm going past your question, is if you think about where we are with ARGUS On Demand, with ARGUS Enterprise and with Developer and even with the old DCF ValCap customers, we have an amazing customer base, like unmatched in the industry. And one of our goals would be to build products that are purpose-built for certain classes of customers where eventually our modern new Web-based solutions we can sell to every customer in our portfolio, and that would be incremental to our upfront license revenue.

And obviously if you looked out a few years, we would migrate that whole customer base to a more subscription modern model. It's been a plan that we've been working on for a few years and we're starting to turn.

And I think we've done it in a fairly effective way to make sure that our customers are getting value, and we've done it in a way that has created value for our company. And I think as we get more critical mass, we would consider doing bookings.

We're just not quite there yet.

Sorry, Paul...

On the deferred revenue side, would subscriptions flow at all through deferred revenue, like is it build upfront like by a year or so? Or is it all purely just on a monthly basis?

It's more monthly, more monthly.

Okay. And just in regards to tax, would you consider, from a strategic point of view, branching out beyond Property Tax into other aspects of the tax advisory market?

Or do you still see significant opportunity within Property Tax?

Yes and yes. So I see amazing opportunity in Property Tax.

I take it as a proxy on expense management, operational cost feasibility, and we definitely see as one of the big opportunities for us using data and software to start giving solutions that improve how people operate these assets. Energy cost, things like even insurance costs where you can start building benchmarking and/or monitoring solutions that take the overall cost of running these assets down on the management side, not something like building operations, truly managing and reporting benchmarking data and analytics to do that.

Well, thanks all for joining. Again, I think 2016 was a lot of fun.

2017 looks really exciting, but if I take a 1-, 2-, or 3-year view on this company, like our customers are responding to our products, we feel we have a really strong pipeline of solutions for the short term and we really believe in our strategy for the next few years. So thanks for your support.