Altus Group Limited

Thank you, Michael. Good afternoon, everyone, and welcome to Altus Group's Second Quarter Results Conference Call and Webcast for the Period Ended June 30, 2017.

For reference, our press 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 second quarter, 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 Chief Executive Officer, Bob Courteau, and Chief Financial Officer, Angelo Bartolini.

Before we get started, please be advised that some of our statements 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 the 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 filings on SEDAR.

Our Q&A session should also be taken into context of these forward-looking information statements. And now I'll turn the call over to Angelo, 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. We're very pleased with the double-digit top line and earnings growth in our consolidated performance.

In Q2, all of our businesses posted positive year-over-year revenue growth, led by outstanding performance from Altus Analytics. Our Altus Analytics business had a record license sales quarter posting double-digit revenue and adjusted EBITDA growth.

Our CRE consulting businesses performed well, with solid year-over-year growth driven by strong Property Tax results. And our Geomatics business posted higher results notwithstanding some of the ongoing market pressures in the oil and gas sector in Western Canada.

Overall, it was a solid quarter marked by strong financial performance and steady progress against our strategic objectives.

I'll start off today with some highlights of our consolidated financial results followed by a deeper review by business segment. First quarter consolidated revenues grew by 17% to CAD 128.8 million, adjusted EBITDA was up by 37% to CAD 25 million.

EBITDA margins improved to 19.4% compared to 16.6% last year. Profit in accordance with IFRS, was CAD 105.5 million compared to CAD 12.7 million.

The big driver there, in addition to adjusted EBITDA growth, was an accounting gain of CAD 115.7 million on the partial deemed disposition of our investment in Real Matters and the remeasurement of our retained interest of 12% after Real Matters went public in May. Adjusted EPS was CAD 0.41, up from CAD 0.28.

a combination of higher AE license sales, EstateMaster sales, software implementation and training services and more due diligence assignments within our appraisal management practice; higher AE software sales were balanced across DCF to AE conversion sales to existing DCF clients, prior to the end of DCF support at end of June; additional license and module sales to existing AE clients; and sales of AE to brand-new clients.

Adjusted EBITDA was up 68% to CAD 16.4 million, reflecting higher revenues, partly offset by higher expenses as we started to increase investments in our ARGUS product roadmap, including adding cloud functionality. In the quarter, adjusted EBITDA margins improved to 34.6% compared to 26.9% in the prior year.

Changes in the exchange rates benefited revenues by 2.5% and adjusted EBITDA by 4.5%.

Commercial Real Estate Consulting revenues were up by 9% to CAD 69.8 million. Property tax revenues were CAD 44.1 million up by 10%, while Valuation and Cost Advisory revenues grew by 7%, rising to CAD 25.7 million.

The growth at Property Tax was driven by healthy performance in North America, specifically benefiting from strength in the Vancouver market due to rise in valuations and clearance of backlog appeals. As well in the U.S., we benefited from a strong settlement cycle in Texas and a big market for us with specialization in the healthcare category.

Our U.K. operations did well, but growth was impacted by the commencement of a new assessment cycle as well as a weaker pound sterling.

Overall, given that we have entered into 2 new large assessment cycles in Ontario and the U.K., we remain positive about the longer-term opportunities, resulting from increased value and volume of appeals. CRE Consulting adjusted EBITDA was up by 7% to CAD 18.4 million, up by 13% to CAD 15.7 million at property tax, but down 20% to CAD 2.7 million at Valuation and Cost Advisory.

The improvement in Property Tax earnings was driven by higher revenues while earnings at Valuation and Cost Advisory were impacted by some early-stage projects in our cost consulting practice.

At Geomatics, revenues were up 23% to CAD 11.8 million as we saw higher activity levels. And despite the ongoing market pressures, we remain profitable with adjusted EBITDA improving to CAD 700,000.

Finally, in our corporate division, corporate costs were CAD 10.6 million, up from CAD 7.7 million last year. Year-to-date, corporate cost have been trending higher year-over-year, reflecting increased variable compensation and the investments we have made in our IT platforms and HR systems in order to scale and support our future growth.

Also of note during the quarter, we incurred approximately CAD 3.6 million in severance cost related to the corporate-wide restructuring program, which we commenced in Q1 in order to optimize operations. This restructuring was completed during the second quarter.

At the end of the quarter, our balance sheet remained strong, with significant flexibility to support our growth strategy. Our bank debt stood at CAD 140 million with a funded debt-to-EBITDA leverage ratio of 1.67x.

Our cash position at the end of the quarter was CAD 45.6 million, with CAD 58.6 million of available borrowing room under our current credit facility. Finally, we continue to see improvement in our DSOs, which declined from 74 days at the end of 2016 to 70 days in Q2 2017.

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

Thanks, Angelo, and good afternoon, everyone. As you just heard, we had a great second quarter.

And we've made a lot of progress against our strategy while delivering double-digit year-over-year growth. We're now on 16 consecutive quarters of year-over-year top line growth, a noteworthy indicator of our track record that underpins that in all of our business we're focused on growth as a key driver of our business, and alongside that, increasing market share with our key offerings and delivering on our strategy.

At Altus Analytics, we had an outstanding quarter, fueled 94% growth in nonrecurring revenues on Record License sales. Recurring revenues, which accounted for approximately 70% of our total Altus Analytics year-to-date revenues, were also up in the double digits at 11%.

As Angelo mentioned, in total, Altus Analytics finished the quarter with 31% top line growth and 68% adjusted EBITDA growth at a very strong 35% EBITDA margins. Q2 was, again, a record license sales quarter.

The largest in ARGUS history. I'm pleased to share that we recently surpassed the 3,000-client milestone for ARGUS Enterprise.

This is a really significant accomplishment.

And I'd personally like to acknowledge the tenacity and hard work of our Altus Analytics sales force under the leadership of Walter Turney. 3,000 ARGUS enterprise customers, in less than 5 years, is a significant accomplishment.

While 3,000 clients is a significant milestone and, by far, the highest software customer base relative to our peers and competitors, we believe there's still a long growth runway ahead for ARGUS Enterprise. On a conservative basis, we estimate there are likely upwards of 8,000 CRE focused firms worldwide who would get significant value from ARGUS Enterprise.

And of course, that market opens up to thousands more firms, as we expand our offerings with new capabilities and get into new segments such as the debt markets and other client types, where we're still not as penetrated as that we are with the owner operators, investment managers and service providers.

So lots of white space ahead, especially outside of North America, our significant focus for next phase of growth. As a sign of our momentum of our progress in Europe during the quarter, we signed Knight Frank, one of the largest CRE service providers worldwide who committed to move ARGUS Enterprise across EMEA.

Another notable client win in Europe included DekaBank out of Germany, one of the country's major banks with a big real estate division that includes property-based investment products, credit funds and commercial property finance. These high-profile customer wins, amongst others, are a good indicator of the European market moving.

Recall, our strategy has been to sell ARGUS enterprise to all the top firms around the world who then influence its adoption into their local ecosystem.

And as a CRE industry continues with its globalization trend, a lot of our North American clients continue to roll out ARGUS Enterprise, globally. These are really strong indicators of the inroads we're making in what we consider new markets.

Approaching the June 30 deadline on our DCF support, we saw increased volumes and transactions as clients recognize the importance of being on the ARGUS Enterprise standard. In addition to clients converting from DCF to ARGUS Enterprise, we had record add-on sales in Q2 and steady net new customers additions.

And add-on sales, which included customers coming back to add more seats and more functionality, have been a key driver for us in the last few quarters. In fact, and it's important to highlight because I think it's sometimes lost in the conversation, our growth has been fueled by more than just converting the DCF base.

Over the last couple of years, approximately 60% of our sales have been from a add-on transactions and net new customers. Approximately, 2/3 of our sales have been from customers who bought more than twice.

And I'll remind you that even in the standard conversion transaction, a customer may not initially buy all the AE seats they ultimately need. This all underpins that beyond the conversion opportunity, which is still ongoing, is now we're focused on the ValCap conversions in the U.K.

same customer sales, targeting new customers and going global are increasingly key growth drivers. And we've been successful in expanding our customer relationships, increasing wallet share and selling broader inside accounts.

We're also penetrating more departments and other types of users.

For instance, during the quarter, we sold ARGUS Enterprise to the lending departments of 2 major U.S. banks.

And our budgeting module continues to increasingly penetrate new departments at our customers' firms. Another example of how we're growing our same customer sales is we brought in our relationship with 1 large U.S.-based investment management client, to work with them in a managed service capability combining both appraisal management and ARGUS Consulting.

This translated to more than doubling their spend with us, all in a recurring revenue category. The client savings of that model was equivalent to 2 full-time resources for them, quite compelling, and we saw this opportunity to approach other clients with a managed service model of our integrated solutions.

getting positioned for a global market opportunity ahead; moving our model from a departmental IT sale to selling more enterprise solutions to the C-Suite while sharpening our focus and sales force on new markets; new applications and up-selling our expanding customer base.

This is a natural evolution in our growth and market demand, and I think the quarter was a nice reflection of that potential. We're not -- we're no longer just seen as a vendor to our clients.

Clients increasingly view us as their R&D provider, partner and strategic adviser. We have relationships at the highest levels with our largest and most influential commercial real estate firms, and our solutions are now deeply entrenched in their daily workflows.

Our ARGUS software is a household brand in the industry. Knowledge of ARGUS Enterprise is now prerequisite for all in this industry in North America, often stipulated in job descriptions.

And in support of that, our software is taught in over 200 universities worldwide. Our prevailing industry standards with ARGUS software; U.S.

open fund benchmarking and attribution analysis; and Canadian market-research, along with our superior loaded mid-90s retention rate provides for exceptional industry validation.

While a lot of the foundational work has been laid, most importantly, establishing a global client base and a market standard, we believe we've only scratched the surface of our true potential. We are uniquely positioned to be the world's largest information services provider to the global commercial real estate market, a one-stop shop for all CRE market participants to access their CRE, portfolio evaluation and management software tools and data.

This is not an easy undertaking, and there are numerous complexities to our strategy. But those -- for those of you who followed us over the past few years, you can recognize our track record of performance and recognize that we have successfully laid the groundwork to elevate Altus Analytics to the next level.

So as we go forward, we will continue to scale the business for the growth opportunity ahead and invest in our product roadmap and innovation to sustain our competitive advantage.

As we mentioned on our last call, we're currently developing more cloud applications that will be accessible for on-premise ARGUS Enterprise users, and accordingly, we will be expanding our development capacity. The gradual moves to the cloud is a critical aspect of our long-term strategy and the path to eventual data monetization.

Alongside this initiative, we continue to modernize our infrastructure for Expert Services so that we can improve how we collect data and how we enhance those businesses with technology. We pride ourselves on investing prudently, and I believe that we can offset margin pressure with revenue growth.

As I mentioned in the past, while we're in a growth phase, we plan to operate between 20% to 30% margin range and on an annual basis by comparison to last year's 27% margins. The impact from our current investments, and I wanted to make this clear, is not expected to be material.

Based on our pipeline and our Altus Analytic's strong performance year-to-date, we're trending well to sustain last year's annualized margins.

So as you can appreciate, given the complexity of the different growth drivers, including the dynamics of entering new markets as Europe becomes more critical, there may be more variability because of the complexity of our pipeline to our comparative and sequential performance as we undergo this transition. But we have strong conviction that the payoff will be robust as we are reinventing ourselves as the world's largest commercial real estate software and data provider, creating a lot of value for our shareholders and the industry alike.

The strong performance in Q2 further illustrates the increased variability this year, obviously, in a positive way. But on balance, given the strong performance in the first half of the year, we feel confident that we will sustain double-digit annualized revenue growth rates at Altus Analytics.

And year-to-date, we're already at 19%.

Turning briefly to CRE Consulting. As you've heard today, we had good year-over-year growth.

Property tax delivered good growth as we benefited from some strength in Vancouver as property values have gone up during this annual assessment cycle and also the authorities were clearing the backlogs of appeals. I did want to give a special mention to our team in Vancouver led by Phil Gertsman.

Their team always does a great job, and I appreciate their amazing work. They also enjoy very, very strong market share in that market.

And in U.S., we benefited from strong start to the annual settlement cycle in Texas, shout out to Mark and Trey and their teams, a big market for us in the healthcare category.

Overall, given that we entered into 2 new big cycles in Ontario and the U.K., we feel good about the long-term opportunities presented by these now 4- and 5-year cycles from the increased value and volume of appeals. As you know, Property Tax continues to represent an attractive growth area for our business, both in the U.S.

and the U.K, and we will continue to augment our growth with acquisitions when opportunity arise. Near term, organic growth could be driven by market share gains, increased critical mass, enhanced productivity as well as through innovation and technology.

We're also benefiting from a higher shift contingency revenues, which gives us good upside. Long term, property tax will benefit from investments in technology that will automate part of the assessment process and leverage our data for new applications.

Our recent white paper on taxes, a new strategic driver, validates the long-term opportunity we see in leveraging our proprietary tax databases. The report based on a survey of over 200 C-level and CRE property tax and finance executives in Canada and U.S.

reveal that only 25% of surveyed senior industry executive said their firms incorporate property tax management directly onto their investment strategy and decision making.

Property tax is the single largest operating expense, yet it isn't being managed as attentively as other property management cost and is often overlooked as an opportunity to drive investment decision-making. The report findings show the majority of firms take a reactionary approach to managing their taxes, and a result is an increase in the risk of portfolio and asset level underperformance.

Obviously, the success suggest a great deal of potential opportunity for our Property Tax business in North America.

Now while this relates specifically to state of property tax planning, the idea of smart data and better intelligence is one that translates across our business and is relevant to all of our clients. Look, we spent our time today on Altus Analytics and Property Tax, I just wanted to add that we continue to make great progress on all of our business segments, including valuation and cost advisory and Geomatics.

Each of this business are leaders in their respective markets, and we will continue to modernize them with technology, and eventually, with data products.

In closing, I would just like to reiterate that we remain in growth mode, very energized by the substantial market opportunity ahead of us. There are a lot of moving pieces in our strategy, but we have a solid track record of execution, a significant market advantage and, quite frankly, we've only just begun to scratch the surface.

Thanks for your support. And now I'll take some questions.

Operator?

I just wanted to ask you, you said that you're seeing a lot of add-on sales. Where is the demand on this new functionality?

What are people buying as add-ons?

Well, the add-on sales come from -- because now you have an enterprise-data-rich environment versus what was mostly focused on individual users. What's happening is people start accumulating data in ARGUS Enterprise, they're sharing it more broadly in their organization, which is leading to more users.

The fact that we have capabilities like sensitivity analysis and budgeting, also lends to attracting new users to ARGUS Enterprise. And as people propagate the use of ARGUS Enterprise as a global platform that also brings more users.

So we're seeing it in a lot of different ways.

Okay. And I just want to move onto ValCap for a bit.

How is that upgrade cycle going now that you've rolled out the new AE version? And then can you -- can you guys...

I think I -- it's going -- we talked about at the beginning of the year, with the investments we're making in development and we were creating a little bit of noise about the back half of the year and the risk potentially to margins to our investments, but it looks like on this quarter and as we go forward, although, there could be some variability how the quarters come, I would say that Europe is ahead of schedule. It's going really, really well.

We signed some big deals this quarter as I described with Deka, Knight Frank and products well into acceptance. We've got some of the global customers that are looking to roll out in Europe, which is part of that same customer -- sorry, some of these U.S.

customers that are looking out in Europe -- to roll out into Europe, all of these things conspire to put us ahead of schedule in Europe. It's going really well.

Can you give us an idea of how big the upgrade cycle is for ValCap versus, let's say, like what it was for DCF?

Yes. So we talked about it like above 15% to 20% of the U.S.

upgrade cycle. But we also did the U.S.

upgrade cycle over 4 years. We're doing ValCap in 2 years, right?

We're going to do end of life by the end of 2018.

Okay. And then just a final one from me.

You saw some subscription revenue bump when you did the DCF upgrade. What is your view on how the perpetual versus subscription mix will be when you do the DCF upgrade -- I'm sorry, the ValCap upgrade cycle?

I think the -- maybe I -- give me the question again because I'm not sure I got it.

When you go through this ValCap upgrade cycle, what is your view on the mix between subscription revenue versus perpetual licenses?

Yes, yes. I think subscription revenue is going to start picking up as we start bringing out applications in 2018.

We had a good ARGUS on-demand quarter. That worked pretty well.

We think that it will be -- in the first pass -- first phase will be high percentage perpetual.

Listen, I understand there's some variability on the quarters. You talked about that.

But was there anything specific that sort of attribute to -- from a timing perspective for Analytics? It seem like it's had -- it was firing on all cylinders here.

Was there like a big push in the quarter? We get the sales and marketing -- some outsized deals that -- what drove that?

What's going on is that we're just getting -- and I created, clearly, some noise around potential risk of variability. I probably could have done a better job saying that variability could lead to great quarters like this if I had the foresight.

When you start getting revenue from multiple sources, and we had some really -- this wasn't a big deal quarter that wasn't what drove it. It was -- we had our best quarter in CAD 50,000 to CAD 100,000 type of deals in the quarter, which came broadly from Asia, Europe the U.S.

And so it wasn't 1 or 2 big deals that really jacked this up. So what we're seeing now is the fact that we got a much more broad revenue mix coming from multiple sources, geography, different type of customers, both upgrade and net new, AOD.

I think we're seeing the maturing of our pipeline in a way that's really, really positive and the benefits of a large customer base that we've grown over the last few years. So I -- look, it really came together nicely in the quarter.

But from me, it speaks really as a really amazing asset to build on as we bring out new functionality, go global and go cloud. And so it's -- we're ahead of schedule on the globalization, is the best way I can say it.

Okay. And then is there a specific strategy to push some of these sort of incremental products now, like Developer, Voyanta, EstateMaster?

It looks like -- special team that -- on the sales side to amp those products there?

Yes. We put a team together, [ tell a team ] on EstateMaster in the U.S., which is a complete white space market for EstateMaster, and they're off and running.

The pipeline is going great on that. We have an AOD selling team in the U.S.

We're, again, ready to light up our U.S. teams to sell global solutions going into 2018.

We really had -- at our sales meeting this year, we had a 30% uptick in terms of people year-over-year. So we've added capacity and sustained margins.

We are pushing all of those things I talked about in terms of a more rich set of pipeline or capabilities that we're offering to the market, are aligned against selling motions and selling models that are directed at each of them.

Okay. And just one last question, I think I asked this last quarter, but if you look at your AE base and then you look at these new products like EstateMaster, Developer, Voyanta et cetera.

Of the base, how many of those customers, on a percentage basis, have one or more the products beyond AE?

It's a -- the way you see it is in the largest companies in the world. We're starting to see really good cross-selling between RVA.

That's where Voyanta is. We're now starting to position EstateMaster for some of those customers.

But that's just new. Clearly, where we have the -- and actually those are the customers we're pushing hard in going global.

But it's early days. Like, honestly, we have not lit up the cross-selling engine other than on our largest customers.

Maybe Angelo or Bob, if you want to take it. Just back on the license revenue growth.

So it's up, call it, CAD 8 million year-on-year. Can you kind of put into buckets how much of that is DCF to AE convergence, how much of it is the due diligence, new clients additions, add ons?

Yes, we've talked about like -- Angelo has got the numbers probably in front of him where we spent a bunch of time on this a couple of days ago. In general, what we're seeing is some roughly right numbers, 30% coming from -- this is going back over the last year, 20%, 30% net new; 30% to 40% expansion; and 20%, 30% upgrade is kind of what we've been running the last 4 quarters.

And the wild card on that is we're starting to see a push on -- every quarter over the last 4 has been an increase in net new because we're pushing into Europe as an example, and we're seeing higher rates of additions in our existing customer base. And what you're seeing is a reduced dependency on upgrade.

Albeit this quarter was a really good upgrade quarter, but those other areas also carried well in the quarter, ergo, why we had such an amazing quarter.

I was more interested in the quarter other than the last year because I'm just trying to get a feel for -- I think from your...

Is the question was this fueled specifically by the DCF end of life? Is that kind of your question?

Sure.

Okay. So the answer to that question is, it was a contributor but it would have been an amazing quarter without it.

So you want to quantify that somehow, Angelo? You can try.

No, I think the ranges that you provided are appropriate for the quarter, Bob.

So those in categories -- the way I did it, Yuri, and maybe I'll try and help you a bit. Again, let's just use 30 30 30, right.

We had good growth in every one of those buckets, so to speak, on the quarter end. So if you take net new, obviously, it being 30% of our pipeline, we actually had a really nice pick-up in the quarter because of some of the transactions we did in Europe on net new.

And similarly, our every quarter over the last 4 -- and this quarter a really strong same customer-growth quarter year-over-year and on a stand-alone basis. So we outperformed Q4 last year, which rarely ever happens in software.

And it just so happened to come at a quarter where we also did really well on the DCF to AE transition. But it wasn't -- it absolutely was not the whole story.

And it'd be tempting to tell you that, so I take a little bit of pressure off into the next quarter, but we feel pretty good about our pipeline because of what I'm telling you going forward.

Okay. That's helpful.

And maybe I'm missing something, but why wouldn't a -- just back to that, maybe there'll be a perceived -- that you did have a rush of clients converting, but I mean couldn't a DCF client choose to continue to run that product without support, just take the chance?

Absolutely, absolutely. But clearly, in the upper mid and large market, they need ARGUS Enterprise because they're -- they participate -- we flipped the switch on the standard.

I talked about it, 80% of the companies upgrading, right? And remember, we talk about companies and users.

The large companies have absolutely, as a rule, high percentage, in the 90s now, have bought ARGUS Enterprise. And so the clean-up is in the onesies, twosies at the low end of the market that could go off support.

At the high end, not a chance.

Right. Early in your prepared remarks, you talked about there being 8,000 CRE firms globally that could be interested in AE.

Do you have 3,000 of the 8,000 already? Or those are the 8,000 that are incremental?

We have 3,000 of the 8,000 already. But that talks about our sweet spot where we sold traditionally.

That doesn't encompass the potential for the debt markets, for banking, research and other areas where we think we can take the product through functionality. It also doesn't include the potential to build new products with the cloud that target other facets of doing business in the commercial real estate industry.

So ergo, I say we're just scratching the surface.

Right. And so 3 of...

And just to make sure I put an exclamation mark, because you're giving me -- exclamation mark on this because you're giving me an opening to do it, what I'm really excited about is every time we increase our base of customers and if we can sustain same customer growth with those customers, this customer base is becoming a really, really exciting asset when we bring out cloud applications or even on-premise applications to go back and sell our customer base. And it creates a very exciting runway for the future.

Right. So I mean, rough math, you've got 40% of the client count already.

But what about the total seats? Are these -- do you have a smaller percentage of the total seats at those...

If -- we think we have an opportunity to grow seats by geography, functionality, the broader use, the distributed architecture of ARGUS Enterprise, the ability to get data broadly in the market, like some of the -- like the deals -- what we're seeing in banking, as an example is, people are now starting to think about using ARGUS Enterprise for even mid-market loans because they'll be able to aggregate all their loan data and do a portfolio modeling against the loan environment. That opens up a whole new sequence of opportunities.

And as we push functionality by aggregating the data, both inside the database environment of ARGUS Enterprise and also in the cloud, it's going to attract more users: professional users, executive users, partner users. And our idea is you take 3,000 clients, you go for 8,000, and you build a bunch of stuff that, that is going to propagate the use of ARGUS Enterprise in those environments.

Just a follow-up on Altus Analytics, which is obviously quite a topical this afternoon. Can you just talk a little bit about -- I'm also trying to get to the sort of white space that you might have, can you talk a little bit about what you view in terms of the magnitude of the market size in Europe versus North America?

Like is the ValCap -- what would the ValCap opportunity be relative to the DCF opportunity?

Yes. So I said 15% to 20% of the DCF opportunity, roughly right.

But don't forget that's a U.K. upgrade, right.

ValCap is a U.K. customer base.

And what's happening is as we go into the U.K. with ValCap, now not only are we upgrading these customers, but we're selling them on a European valuation platform or a European software platform.

So not only do we go in and do the upgrade, we try and get these larger customers to want to run ARGUS Enterprise across Europe, which is all white space new users.

Right, okay. And is the new customer opportunity more robust than the ValCap commercial opportunity?

Well, to go from 3,000 to 8,000, that additional 5,000 probably -- 4,000 of the 5,000 is -- I'm thinking my math right here. So 4,000 of the 5,000 is going to be going into net new markets, right.

So it's a whole net new market opportunity in Europe, Asia and the rest of the world.

Right. Okay, that's great.

And then just switching gears a little bit to the tax business. You didn't really cite any -- you didn't cite any challenges from the Ontario valuation cycle.

Was that just a timing wise? Or is that headwind in the rear view mirror at this point?

Well, I think we overachieved our soft guidance, if you call that, in the quarter. And it speaks to the robustness of our tax business where we can have a quarter like we did, in Vancouver and Texas, to offset any of the softness in our 2 biggest markets.

So I'm not sure I'm answering your question, but we're not -- we still feel like we're just getting going in the U.K. and Ontario.

Those things will evolve over the next couple of quarters and should be strong for the next few years. I don't know, Angelo, would you add anything to that?

Yes. I wouldn't describe -- certainly, I wouldn't describe Ontario having been a headwind at all.

It had a solid quarter despite the fact that, yes, we were focused on filing appeals, U.K. as well.

It's -- they're doing well but they're not doing as well as they could be in this period. But going forward, we see a lot of opportunity, again, just based on the value of the appeals and the potential increased volume that we're going to get over the next cycle.

Right. No, I meant more that Ontario wasn't a headwind in this quarter but it was last.

And I was just surprised that it wasn't as impactful this quarter, but -- I guess relative to the strength of other geographies.

So I wanted to touch on something that you've sort of mentioned briefly in your prepared remarks on opportunity that you're looking at in the debt market or considering. I'm curious what your thoughts would be on good first steps in that direction.

Strikes me as a very nice natural fit, perhaps as many of our financial customers in the natural extension giving large role of debt financing in commercial real estate. So maybe you could just clarify a bit your thoughts, and understand if it's a bit conceptual at this point, but would definitely be curious to hear what your ideas are.

It's not conceptual. We closed a huge bank in the U.S., one of the biggest in the U.S.

to use ARGUS Enterprise in terms of modeling their loans and tracking their -- those portfolios. Deka is -- a big part of that deal was focused on tracking the debt side of real estate.

We've done other larger deals like this. And where the opportunity is, Maggie, is to start thinking about taking ARGUS Enterprise and building incremental functionality that improves the use of ARGUS against that persona, against the needs of a professional on the loan side or on the debt side.

And that's something that we're going to evolve to, for sure. Because then you can take your debt equity and other real estate assets and start using the common product around that, and use your data to start managing those portfolios.

Albeit different in terms of their structure with common data over time.

Okay. And would that have a bit of a feedback looped into your existing products, just in terms of aggregating information on debt for the people who need that?

Like part of our strategy on cloud, eventually, is to actually allow customers to aggregate that data, marry it up with other data and start doing reporting on both debt and equity portfolios, which could actually take in forecast data from companies like VPS or accounting data from ERD or MRI. So the idea is the more people use ARGUS Enterprise broadly to their organization, they're going to have tools to be able to broadly manage their assets more directly.

So that's part of where we're headed in that regard. But we have been a natural benefactor of this where customers figured out this is a good platform to do their work on.

We've got a couple of -- we've now -- I think I had a question before, "Have you organized around these opportunities?" We've got people now in the U.S.

that are focused -- and actually 1 person in Europe now, focused specifically on banks or on to debt-type customers.

Okay. Great.

Just back to the ARGUS on-demand stuff. So from your outlook it sounds like you're just starting to get going in terms of penetrating the opportunity.

Can you talk a little about what your expectations would be in the near term for that? And do you see that sort of accelerating over the next year or so?

ARGUS on-demand has really done well. It's a SoD compliant asset now.

We're moving from Citrix to a more cloud-based architecture. We are seeing really good pick-up like we're, I think, we're now 5 or 6 quarters into it.

We haven't announced the new customers, I don't think, Camilla, but we had a really great quarter on it. And it's a really great precursor to our plans in the cloud, and we're seeing a lot of pick-up from some of the smaller consumers of ARGUS Enterprise.

We get 1 or 2 customers a day just going on our website and buying ARGUS Enterprise off our cloud base ARGUS on-demand solution. So it's another selling motion, but it also sets up our transition to having ARGUS Enterprise available on-premise and in the cloud fully synced.

So this thing will evolve over -- well into 2018. But what I'm excited about is it feels like we've got a really nice pipeline to get this bridge to the cloud.

Cloud should be incremental rather than substitutional, and we will build more functionality for existing customers and build functionality for new customers like in the banking markets. So we're building a really, really nice customer base, and we're extending the ability to use the product with new functionality, as we go forward, and finally, putting a whole agenda around modernization as well.

It's pretty exciting.

Yes, for sure. And then just one final question.

In the outlook on property tax there was comments on opportunities that looked attractive to grow, both organically and by M&A. So I'm curious, organically, obviously, it seems like you're gaining market share and you're doing quite well.

The M&A piece, what has the market been like? Have there been transactions?

What are deals -- what's pricing expectations like? And do you think that there is good opportunity for you there in the next, call it, 12 to 18 months?

Yes, I think there's some pretty interesting opportunity. I think we -- the nice thing, Maggie, is that we don't have to take them to take growth.

I think that's probably the best thing I can say about what we've been able to accomplish. This market has been underserved by really good technology, and so there ain't a lot of companies to buy out that are pure-play technology companies, but we're looking at a few.

Obviously, we'd love to pick up some tax companies. And we've got some conversations going on.

But we're also going to be -- we're going to make sure we don't screw up our franchise, right?

I've got 2, if I may. First one, Bob, you talked about managed services and consulting business.

If I'm not mistaken, you spoke about managed services in appraisal. I was wondering if you could elaborate on that and maybe add any thoughts on progress on the property tax side for managed services and maybe what this could do on your margins.

And then I have a follow-up.

Yes, we are out promoting managed services on the tax side, and we're particularly focused on large North American customers. And I've been on record of saying, look, we don't want this to be breakthrough over the next year.

We want it -- we would love to pick up 2, 3 customers as a way of really building out our capabilities around managed services on tax. But it's not just property tax, it's -- we think there's a big play with Voyanta and data management, where customers are really looking for help in implementing these type of solutions, but also working with their partners to manage this complex data.

And so we're going to put some energy into that. We've got number of proposals going on there.

Look, what's interesting for me in terms of the margins and why managed services is pretty -- is a pretty cool opportunity is, A: the customers want it, B; we have the expertise to deliver it, and C; I can amortize that over my current cost base while I ramp up these new opportunities. And just like we had a really good margin quarter on Altus Analytics, part of it is we did a fair amount of due diligence work which is a form of services.

It's a onetime service but it gives you visibility on using our expertise to do really good work beyond just the Appraisal Management or ARGUS. The customers are really looking for us to do more, and we're going to try and take advantage of it and use our people to extend the capabilities that we offer, and do it in a way where we won't have to invest significantly because we already have the talent in our organization.

We'll add resources as we have success or in contract. And so I think it can be growth and margin accretive.

Excellent. Okay, that's very helpful.

And then just a last one, it's kind of a flyer. In your prepared remarks, you mentioned your long-term objectives, obviously, to become the global -- sorry, the largest service provider in CRE for 3 things: portfolio management; valuation; and the third thing was the most interesting to me, management software.

Are you going after -- maybe you can elaborate on this strategy, are you going after the asset management platforms directly? Are you trying to creep into the space?

Is this a large third pillar?

We want to have -- we want our solution to be adopted by portfolio managers and asset managers on a global basis. And we want to deliver data through those relationships that allow them to mark-to-market their portfolios, to look at benchmarking, to understand the nuances of performance in markets.

Like we -- that's absolutely an end point game.

But to be clear, not day-to-day management of the asset and in the rent roles of...

No, it's giving them the data and software to be able to manage themselves. No, we're not going into the asset management business.

I'm ambitious, but not to the point where I'm going to take business away from my most important customers.

Just wanted to hone in more on the addressable adjustable market. What's your thoughts on the magnitude of the opportunity at existing customers for additional products and expanded deployments?

I mean, do you think it's reasonable to assume maybe a double the revenue for customers in next 3 to 5 years or so?

On the software basis, absolutely. Just on -- I think it's even higher than that if you take the range of different things we can do.

We can add functionality. We can go global.

We can go to other parts of the business. We can give them data that's going to encourage more use of the software.

So yes, like, this is a double or triple for sure, from -- and probably even higher from initial buy, is what we're seeing already. And what's really interesting, Paul, is look, we took this on -- the hard thing is getting customers to convert from their existing valuation methodologies.

In the U.S. and Canada, with DCF and large crying and hewing in -- around ValCap in the U.K.

This is hard work. But what we're seeing now is these large -- the largest institutional players don't really care about what the valuation methodology is in Italy or Singapore or Australia.

What they want to do is they want to be able to value their assets consistently around the world. So part of the reason that we're starting to see an acceleration of the use and the propagation of ARGUS Enterprise is when Blackstone, which I've talked about before, says, "I'm going to use -- I'm going to want ARGUS Enterprise files in every market in Australia and Asia and now we're looking at Europe."

That's going to change the need to upgrade from a valuation standard in Amsterdam or Italy. The brokers will have to respond to that, and there's a natural ecosystem play that goes out a bit where I capture users on the broker or on the service provider side, and I capture it with the largest company in the world.

So yes, for sure. It's -- I think that's part of why we're ahead of schedule, in my opinion, relative to the globalization of ARGUS Enterprise.

It's helpful to understand. Just wanted to have -- if you could elaborate on your comment regarding the variability -- potential variability in Altus Analytics.

It sounds like to me that the variability should diminish just given the increasing size of the customer base, the geographic expansion, the number of deals, et cetera. Is -- should we take it as the variability is more just driven on the fact that license revenue as the higher percent of the mix?

Or is there something else underlying it?

It's more that -- by -- it's more about the complexity of our pipeline now with the opportunity to add large deals where if you don't have a mix of higher deals in a quarter, you might see a fall off. But what we're seeing now is on an annualized basis, we really love our pipeline and we love our product set, and we love the globalization.

So we'll able to carry it on an annual -- we'll get double-digit growth on an annualized basis. But you might have a quarter like this one, which is off the charts followed by one, and I'm not saying this as guides, but you might have like a single-digit quarter as an example, right, just because of the complexity of the pipeline.

And frankly, I was doing some conditioning at the beginning of the year around that but I'm telling you now it's going pretty well, so, and we feel pretty good about where we are right now, obviously.

So just to completely understand. So the -- it feels like the potential for larger -- the deals are getting larger but that didn't necessarily impact this quarter yet?

Yes, this quarter was a high -- low-mid -- sorry, low large customer quarter. We had huge amount of transactions around the world in the CAD 50,000 to CAD 100,000 mark.

And that was an unusual amount of transactions relative to what we've seen in the past, right. And it frankly explains that complexity of calling a smooth set of quarters going forward because of the shift to Argus.

I might explain it this way, before the shift to Argus on demand. The multiplicity of different types of revenue that we're getting right now you could see -- you won't see quarters like we just threw at you every quarter.

But on a full-year basis, we feel pretty good that we're going to be able to achieve double-digit revenue growth going forward with ARGUS on-premise even with the transition to the cloud as we go forward over the next number of quarters. I don't know if I'm getting that right to you.

It doesn't sound like I am, Paul. But really I'm giving myself -- I'm giving myself some room to move this to an annualized business as I go forward rather than what we've done the last 4 years, where we've had consistent year-over-year growth, 16 quarters.

I still think we can probably get there, but maybe my record won't be intact one quarter because of the way the revenue is coming.

Okay. Well, I'll finish by saying, I'll try, Paul, to do a better job of explaining that to you and the rest of the folks.

But look, it was a great quarter. I think it's a bellwether on our transition.

We're really, really excited about where we're going to take this thing. And the real playbook here is customer acquisition and expansion inside those customers.

That's what we're about. I think we're ahead of schedule on that.

And it gives us an opportunity to really increase the available market, going from 3,000 to 8,000. But what's exciting is we're finding more things to sell our current customer base, and we will just keep on pushing that agenda.

So thanks for taking the time, look forward to talking to you directly.