Altus Group Limited

Ali Mahdavi – Investor Relations Angelo Bartolini – Chief Financial Officer Bob Courteau – Chief Executive Officer

Yuri Lynk – Canaccord Genuity Richard Tse – National Bank Financial Paul Treiber – RBC Capital Markets Deepak Kaushal – GMP Securities Stephen MacLeod – BMO Capital Markets Paul Steep – Scotia Capital Maggie MacDougall – Cormark Securities

Thank you. Good afternoon, everyone, and welcome to Altus Group’s Q2 2018 results conference call and webcast for the quarter ended June 30, 2018.

For reference, our earnings news release was issued shortly after the close of market this afternoon and 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 of 2018, 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 at 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 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. I will now turn the call over to our CFO, Angelo Bartolini, who will start out with a review of our financial performance.

Thank you, Ali. And thank you all for joining us on the call and webcast this afternoon.

I’ll start off with some highlights of our consolidated financial results, followed by a review by business segment. I’m pleased to report that our businesses continued to perform well and as expected during the second quarter.

And despite some anticipated variability, the steady growth in our consolidated results demonstrates the strength of our business model. Our key financial metrics continue to be strong as we invest for the future in new technology applications and modernization of our expert services.

During the second quarter at Altus Analytics, we realized long-term growth opportunities globally for our data analytics and software solutions with inroads in Europe. And we continued to make significant progress in furthering development of new upcoming cloud functionality.

Our CRE Consulting practices performed well across each of our service lines in Property Tax and Valuation and Cost Advisory. In Property Tax, we see a significant growth opportunity with the ability to further grow market share in both the UK and U.S.

Lastly, performance of our Geomatics business reflected the ongoing market pressures in the oil and gas sector in Western Canada. We have taken further actions this year in reducing our cost structure with the expectation of seeing improving margins as activity levels return.

I’ll now provide a summary of our consolidated results for Q2. Consolidated revenues increased 5% to $134.2 million.

Foreign exchange rate movements impacted revenues by negative 1.5%. The increase in revenues in the quarter was driven by organic and acquisitive growth in our UK Property Tax business, offset by a decline in Geomatics.

The Property Tax practices showed strong growth and were up 13.4% in aggregate. In Altus Analytics, we were pleased that revenues were higher by 3.9% on same currency basis, given they came off a very strong quarter last year, which saw record sales of AE following the end of DCF maintenance support.

Our Valuation and Cost Advisory businesses also increased 5.1%, while Geomatics declined by 12% on continued weakness in its end market. Adjusted EBITDA was $23.8 million for the quarter ended June 30, 2018, marginally down by 1% from $24 million in the same period in 2017, a reflection of the product investment we have made with Altus Analytics.

Foreign exchange rate movements also impacted adjusted EBITDA by 3%. Consolidated profit in Q2 in accordance with IFRS was $300,000 compared to $104.9 million in the same period in 2017.

Basic and diluted EPS of $0.01 for the quarter versus $2.75 per share and $2.72 per share on a basic and diluted basis respectively last year, due to an accounting gain on a partial deemed disposition and remeasurement of our retained interest in the company’s investment in Real Matters during the second quarter of 2017. Adjusted EPS remained unchanged at $0.40 in Q2 when compared to the same period in 2017.

Moving onto our performance by business segment. In Q2, our Altus Analytics business revenues increased by 1% to $47 million, which were impacted by currency movements of negative 2.9%.

As indicated earlier, we faced a strong compare to last year when we saw historic high sales of AE significantly impacted by conversions due to the end of DCF support. Yet despite this backdrop, we replaced last year’s DCF conversion revenues with new sales – with net new sales to new and existing customers.

We made inroads this quarter with sales into Europe and with sales to large global clients that included multiple products. Other areas of Altus Analytics, such as appraisal management and software consulting, were moderately higher, although due assignments were lower, offsetting revenues and EBITDA.

This is a profitable business for us, but very much project-based. Recurring revenues was a component of our revenue reporting prior to implementation of IFRS 15 this year.

This metric is no longer consistent with revenue recognition under IFRS 15, but for purposes of benchmarking to past performance, we have disclosed this measure in the MDA, consistent with past practices, which treat the economic contract values of subscription products ratably over the contract term. On this basis, recurring revenues were up 6.1% at $32.6 million when compared to $30.7 million in the same period in 2017.

For the quarter, adjusted EBITDA declined by 16.9% to $12.9 million, impacted negatively by foreign exchange of 3.9%. As well, investments we made in resources to build out our cloud functionality are also impacting adjusted EBITDA.

These investments are now included in our run rates, and we do not expect any material new investments related to our cloud road map. Our adjusted EBITDA margin for the quarter was 27.4%, up sequentially from Q1.

Turning to our CRE Consulting. Revenues increased by 10.4% to $77.1 million in Q2, while adjusted EBITDA climbed 4% to $19.1 million.

Our Property Tax business continued to be a strong contributor in Q2, up by 13.4% at $50.1 million, primarily due to strong organic and acquisitive growth from our UK Property Tax practice and continued strong performance in the U.S. In the UK, the integration with CVS is proceeding on schedule as we have been integrating frontline and back-office business processes, while still maintaining a strong focus on business development and market share growth.

As a result, we expect to see improved efficiencies and margin growth in the UK in future quarters. As well for the UK, this quarter included the annual billing amounts that apply to a significant number of our client contracts and which will continue to be billed annually in Q2 for the balance of this valuation cycle.

In Canada in the near term, we are being impacted by the new Ontario scheduling processes which are deferring appeal settlements. However, our pipeline of work remains unaffected and strong and the deferral only stands to benefit future periods.

As we are still in the early stages of the tax cycles in both Ontario and the UK, we expect robust growth moving into 2019. The Valuation and Cost Advisory practices also performed well, with revenues up 5.1% on stronger performance from our global Cost practice, where we experienced growth in both Canada and Australia.

Finally at Geomatics, revenues decreased by 12% to $10.4 million as activity levels remained depressed in oil drilling and gas exploration. Adjusted EBITDA increased 18.3% to $900,000 as a result of headcount reductions and other cost initiatives, which were discussed in Q1.

Corporate costs in Q2 were $9.1 million compared to $10.6 million in the same period in 2017. During the quarter, corporate costs increased on lower accrual of variable compensation and lower corporate technology spend.

Corporate costs as a percentage of revenues was 6.8% as compared to 8.3% in the same period last year. At the end of the second quarter, the company’s bank debt was $189.2 million, representing a funded debt to EBITDA leverage ratio of 2.28x compared to 1.8x at December 31, 2017.

The increase was related to the acquisition of Taliance, which closed on July 1. With that, I would now like to turn the call over to Bob.

Bob?

Thanks, Angelo, and good afternoon, everyone. In the second quarter, we made significant progress with our strategic investments, particularly the development of our first ARGUS enterprises cloud application and the acquisition of Taliance, which adds comprehensive investment management capabilities to our product solutions portfolio and which builds on our strategic presence in Europe.

These initiatives are foundational as we drive to become an enterprise company, as part of the evolution towards becoming global with the ultimate goal of doing great things for our customers and for our company. We continue to focus on revenue and earnings growth, while moving ahead with smart well-calculated strategic investments.

We had a productive quarter, and I’m proud of what the team has accomplished and what is yet to come from our current actions, innovation and investments. And as we look to the remainder of the year, we feel very positive about the company’s growth potential in 2018 and even more so as we move forward into 2019.

At Altus Analytics, we make – we’re making excellent progress against our strategy, driving higher sales from existing and new customers, market share gains in new geographies and enhanced value from product improvements. During the quarter, we also continued to focus on deepening our solution and service offerings with existing customers around the globe, while focusing our sales efforts and leveraging our leadership position as the global standard on new and significant growth opportunities.

We continue to focus on increasing wallet share of spend with our existing customers through upselling new products into our existing base of 3,500 clients. We also further augment our growth efforts through offering our core products and services, such as ARGUS Enterprise, into our existing client base for a variety of use cases, ranging from asset valuation and reporting to decision-making process in the case of global asset and investment managers.

All of our strategic efforts in expanding outside of traditional markets, combined with a holistic service offering, continue to fuel our growing and dynamic sales pipeline. This provides us with strong confidence in our success and the future of the business, as revenues outpace our investments towards the end of the year and going in into 2019.

The modernization and technology enablement of our expert services business is underway. And with it, we see tremendous value in the power of our data.

With ongoing evolution of our technology platform in the cloud and with the depth and scale of this data as actionable information, we are building an enviable platform, which will uniquely serve CRE asset and investment managers and owners around the world. We’re investing in cloud applications in order to achieve our objectives in attracting new users, improving industry workflows and creating new applications.

We expect our first solution to be released in the second half of the year, and we will target the acquisitions workflow with ARGUS Acquire. And we have continuing growth opportunities with ARGUS Enterprise to expand geographically, add new functionally – functionality and increase client usage.

The good news here is that we have a growing pipeline of opportunities, which provides us with considerable confidence in the future. As Angelo mentioned in his remarks, Altus Analytics posted modest growth in Q2, while we maintained a 27.4% adjusted EBITDA margin.

This was accomplished despite our decision to make significant strategic investments to underpin and accelerate future growth. And currency headwinds during the quarter also affected the performance.

So we were quite pleased with the adjusted EBITDA margin. And as most of you are aware, our investments have been towards the addition of cloud functionality in ARGUS and adding talent to support our global expansion and strengthen our ability to onboarding and servicing the largest commercial real estate investors around the world.

There’s significant upside opportunity for Altus Analytics software products and services globally. ARGUS Enterprise, which provides global portfolio analytical capabilities with multicurrency adaptability, is a standard in North America, the UK and EMEA.

And our goal with AE remains to significantly increase our market penetration through a dual approach, by taking our top 200 clients global and therefore creating a network effect, and by increasing our sales and marketing efforts to new clients in these markets. Our top 200 clients are among the world’s largest CRE investors, and only a few have deployed AE globally.

We have developed support programs throughout to help our clients more efficiently and effectively deploy globally. A network effect is created as client partners will require AE to support or transact with clients in local markets.

As mentioned, we continue to work on the AE platform for the cloud. We have increased investments in our development team as we’ve modernized the current AE platform and developed new web application.

The early phases of our cloud strategy consist of first developing new applications that will be cloud-based, but synchronized with the AE on-premise solution and ARGUS On Demand product through application program interfaces and portal functionality, which will bring new users to the ARGUS Enterprise environment. We expect to continue to benefit from growing global demand and favorable trends to increase the use of technology and data in the CRE market.

And our product offerings stand to serve the growing needs from professional assets and investment managers for data analytical tools and software solutions that will help drive more timely and informed decisions. We expect to see the first launch of our first web application along with a cloud platform, enabling future applications.

And we have been investing significantly in this new technology, and we’ll continue to do so in order to sustain our long-term objectives. We’re targeting new customers in appraisal management and advisory services and see a growing opportunity for new engagements in global market as we continue to work with the large global firms.

Turning to the CRE Consulting, Property Tax and Valuation and Cost Advisory. They continue to demonstrate market leadership in their respective practices, delivering continued top line and adjusted EBITDA growth.

We see ourselves as the market leader in Property Tax as well as a consolidator. And Property Tax continues to represent an attractive growth area for our business, both in the U.S.

and in Canada, as we implement new data solutions in Canada as well. We’re a major player in the category.

And as you may have heard me say in recent months, I’m really excited about what we are doing with this segment. Our strategy to transit – transition this segment using automation and technology will enable us to integrate this business into our technology platform, resulting in accelerated growth and higher margins in the future, while offering a valuable service to our CRE clients.

This gives us the existing market share penetration and opportunities for additional share through both organic and acquisitive means. We see attractive top line and earnings growth potential in future quarters.

The Valuation and Cost Advisory practices enjoyed significant market share in Canada, and result continue to grow modestly. We expect moderate growth in the near-term future.

Our valuation practice predominantly operating in Canada continues to benefit from strong client retention. Our Cost practice in North America continues to diversify its client and industry focus.

And in Asia-Pacific, we continue to leverage our global relationships to drive opportunities. Looking ahead, given the leading market share that is enjoyed by these groups, we expect the data collection potential from these businesses to be invaluable and support our long-term growth ambitions.

At Geomatics, we maintain a cautious outlook for 2018. Although oil prices have recently improved, this could translate into improved activity levels for oil drilling.

Gas prices remain depressed. And as a result, we’re seeing lower planned capital expenditures within this segment.

Furthermore, pricing pressures in our industry continue to persist. As a result, we’ve taken further actions in 2018 and we’ll continue to closely monitor market conditions.

To close, I’d just like to reiterate that we remain in growth mode. We’re very energized of the substantial market opportunity ahead of us.

We believe in our strategy to transform the industry on a global basis, ARGUS as a global standard for real estate data, data shared in the cloud for the benefit of improved insights and planning, and highly relevant analytics to support greater transparency. Our company is positioned to provide a modern platform to the largest companies in the world and give visibility to the all-important geographic markets.

Thanks for your support, and we welcome any questions.

Hey, Bob. Hey, Angelo.

Hey, Yuri.

Hey.

Hi guys. Good quarter, Bob, looking – how do I square the revenue performance year-to-date at AE?

It’s been, I think it’s been the best first half in probably in the history of the company. But the customer count is kind of stuck at 3,500.

So how do I square those two? You would think that that customer count would be creeping up along with the revenues.

Yes. I think what – well first of all, it’s moved past 3,500.

We haven’t declared on the number in some time. But what’s happening now is some of the volume growth that’s coming out of the UK upgrade, where not only are we getting the benefits of some of that revenue in the UK, but in Europe generally, what we’re doing is we’re starting to see larger deals.

Like our pipeline in Europe for larger transactions, and frankly, in the quarter, we had some really nice wins where customers are looking at ARGUS as a global investment management solution. So when I talk about shifting to an enterprise company, we believe that will lead us into volume as well.

So when we take companies like Blackstone or CBRE GI or others that are rolling ARGUS Enterprise globally, as that becomes more of a standard in some of the new customers we’re adding in Europe, we expect that the volume in those markets will pick up as well. That will be a year that we get in the medium term as we start becoming stronger in those markets.

Really, the growth that we see that’s going to be substantial in the next couple of years will come from larger transactions with the larger customers, application growth in our base and the ability to grow global also with our North American and UK customers. So although that will go down the road to increase the number of customers in individual markets or geographies, we expect that our deal size will go up, and we’ll start doing larger deals with the largest customers in the world.

And Taliance is going to really help that as well.

So So the customer that deploys globally or in incremental countries still gets Canada as a customer or not?

Yes, but it’s one customer, right? And it’s less more users, right?

So remember, we closed a few deals in the quarter with net new customers that are going to be much larger deals. And they’re going to open the doors in those markets as well.

Okay. How do you expect the recurring – your recurring revenue to evolve once you get these cloud applications in the market?

And could you tighten up the time frame a little bit as to when these will be released?

We will make a decision in 2019 about how we want to drive our pricing strategy between ARGUS Enterprise classic and the new cloud applications. And that’s something that obviously, we’ll balance off an increased recurring revenue opportunity.

And clearly what we’re trying to do is make sure we do that in a way where we protect our EBITDA margin growth as we go forward. Part of the reason that we’re not terribly worried about that transition is that we have a very substantial part of our revenue that’s continuing to come out of appraisal management, which have – will continue to support some of the same quarter margin.

So we actually have to factor that in, in a couple of ways. One is the move to larger customers buying on a global basis that might prefer subscription-type relationship.

The fact that we’ll have more cloud products in the market, including Taliance, which is effectively only offered as a cloud product. So that, as we increase our selling – as we give them capacity for selling, it’s going to help.

And the bundling of both ARGUS Enterprise on-premise and cloud solutions will also probably would start moving more towards the subscription-type agreement. And so we would expect that recurring revenue will start moving up as we go into 2019 in a very positive way.

Okay. That’s it from me.

I will turn it over. Thanks.

Hey, Bob. I was wondering if you guys could maybe give a bit of insight into Altus Analytics in terms of the mix of revenue from new versus existing customers?

Yes. Well, the real story in the quarter is that a huge amount of our revenue last year in Q2 was upgraded revenue in North America.

And in this quarter, it was our best quarter ever in Europe, not only in – and Continental Europe was really, really strong outside of the UK, where we had a number of large enterprise transaction deals. And so that’s a big mix, like the net new customer plus existing customer where our growth in the base really carries the day, where we replaced a significant amount of revenue last year.

So we were really, really happy with the quarter. The other thing that’s – that is not obvious is that we also had lower due diligence revenue in the quarter, which is a profitable business line.

That’s more project-based. And so in many respects, with the combination of a good license quarter, continuing growth in valuation, on balance it was a – it was really a good performance, relative to the headwinds of an amazing quarter last year and the fact that we had lower due diligence revenue.

So these larger deals are interesting. Do you guys track like average deal size metric?

And if so, can you sort of share what that would have been year-over-year?

We track it, and we’re not sharing it yet. But as part of this shift to an enterprise company, we’re fussing with some metrics that will be interesting, particularly in terms of net new customers in Europe and average deal size.

The other thing coming – sort of a combo question, we’re seeing really, really good pickup in the pipeline around managed services for both Voyanta and for Taliance in a short period of time. And so well we imagine, we did a deal in the quarter that was a combination of Voyanta, Taliance, ARGUS Enterprise.

Unfortunately, we did it late in the quarter, so we didn’t collect the Taliance part of that deal. But it was a blueprint for what we’re going to try and do, which is a fully integrated global deal where that customer bought ARGUS Enterprise everywhere.

Those deals are really going to populate our pipeline and the go forward, and they’re a big part of our shift to an enterprise company.

Okay, and just one last one for me. I noticed in the filing that you’re doing a restructuring on CVS.

I’m kind of curious as to why you’re making that decision now when I think you acquired it mid- last year. So what’s changed in sort of how you do that restructuring here?

That’s it, thanks.

Well, we’re getting more cost savings. We’re accelerating our plan.

We were actually performing quite well. We had a good quarter in CVS.

It’s – we about three years ago, moved to annualized billing in CVS – in sorry, in Altus classic. And that was also part of the contribution.

So across the board, we’ve been able to actually accelerate our integration in CVS. And we were planning on taking some of those costs out potentially Q3, even Q4.

And we moved it forward, increasing our confidence in the new team and how we’re organized.

I’ll just add, Richard, that we actually started the planning late last year and early this year. We did the acquisition, two – combined two businesses that were of equal size, having different processes.

And so we decided that we would be very careful about the process, and we took our time to plan it. But we’re, if anything, ahead of schedule from an integration.

And we are taking some significant costs out while actually improving a lot of the frontline business processes.

Okay, that’s good to hear. Thank you.

Thanks very much. Good afternoon.

I just want to focus on ValCap for a moment. Could you just comment on how – or what proportion of the AA revenue was related to ValCap upgrades?

And then how much of that opportunity have you upgraded already? And then what – over what time frame do you expect to remain there?

Yes. We’ve been pretty steady on ValCap through the last year since we announced the program.

We’ve moved a lot of the high-value customers over the last year. We’re still getting – what we’re actually seeing on ValCap is that the customers that have bought ValCap already are extending the use of ValCap.

And we’re into that second level of selling around that where we’re pushing more users inside these customers. And so there’s still an opportunity because we’re not fully finished the program, but in the quarter, it was – it wasn’t a significant – it wasn’t one of the major contributors to performance.

And we don’t see it as being so in the future. I think the big contributors are going to be large enterprise deals, which are more and more populating our pipeline and frankly, set up an opportunity to go into those secondary markets.

We’re making some investments now in France and Germany, where we see those markets in 2019 as being ones where we can get volume as well by having lead reference accounts, language and functionality capability. And so now, those two markets would be the ones where we start picking up the next wave of opportunity.

It was also one of the benefits of the Taliance acquisition is that they’re the predominant player in that market. So ValCap’s a contributor – ValCap upgrade, I should say, is a contributor, but not substantial in the quarter and going forward.

Okay. Then, you mentioned international.

I noticed a new disclosure in the MD&A just regarding appraisal management being launched in Asia this quarter. Can you just comment on that?

So as part of our model, in terms of targeting large accounts, the same customers that are thinking about ARGUS Enterprise everywhere, are looking for independent valuation that’s normalized. And we want to take our privilege with the largest customers and give them the opportunity to extend local valuation management on a global basis for their investors, these investors in the open fund.

And the open funds are growing global. And so what we’re doing is we’re able to invest in a market, like Asia, where we can get a large client valuing those assets in a normalized way globally for our large customer.

They can value them on ARGUS Enterprise, so they get a common valuation methodology. And because we’re moving in the cloud, they’ll also be able get a common data repository.

And so that’s part of our strategy. We’re setting up an end-to-end capability.

And then the aggregation opportunity and reporting opportunity, we can start laying in with Voyanta and Taliance. And so we’re preparing ourselves to operate for our customers on a global basis, the ability to have soup to nuts, the software and the service and the data to manage their business for the largest CRE companies in the world.

So we’re building capabilities as part of our investment this year towards being a global supplier for the biggest CRE companies in the world where we can support them everywhere. And when they start using ARGUS in all markets in Asia, including markets like Japan, that’s how we’re going to increase our volume growth.

We’re going behind that, not unlike we’re planning in France and Germany and start building the functionality for the next bigger markets. So France I think – I think Germany is the third biggest economy in the world.

It might be second. France is fifth.

Japan’s not far behind that. And we have it in our mind that we want to operate in those markets.

Australia, obviously, is already one of the ones where we have a good position in the market.

And then related to that, just in terms of the expectations for revenue contribution from Asia, because I think you mentioned Europe would be a catalyst in it in the near to medium term. Is Asia probably more on the longer-term time frame?

I think by investing in Asia, we’re going to get singles and doubles. And we will build a global account program, targeting – here, we’re talking about the top 200 in the world.

There’s four to five clients over there that we have in our mind, could be great target clients to use ARGUS Enterprise to propagate the use in those markets. But next year, it’s going to be Europe.

It’s going to be large customers. It’s going to be the exploitation of Taliance.

It’s going to be the emergence of cloud and the data opportunity in cloud. In Asia, by having that capability in Asia, it encourages more customers to take ARGUS Enterprise everywhere.

And then we might not record that as Asian revenue because it will be U.S. and European customers going to Asia with the support in place.

And eventually, that market will be one that we’ll be well positioned to go after volume, market by market, probably with some of the service providers like Colliers or Cushman or CBRE.

Okay. Thanks for taking my question.

Thank you.

Hi, good evening, guys. Thanks for taking my questions.

Bob, I wanted to ask a follow-up question on surprise, surprise, Altus Analytics growth. In terms of the 200, top 200 potential customers that mark the opportunity, can you offer any metrics on how many you have today, how many you might expect to add this year and next year?

Yes. We touched – we said this before.

I think it’s in one of our investor decks. I think it’s 185 of the top 235.

I think those are the numbers. And at the extreme, we have significant relationships with 5 or 10 major customers.

And at the end, they might have bought a few licenses from ARGUS, right? But we’re sub-10 where we really exploited those relationship.

But talking about CBRE GI or Brookfield or Blackstone, they’re starting to use our services broadly on a global basis. And we will – and we continue to have opportunities with those customers, but we’re just getting going.

And that doesn’t include the opportunity to sell net new global investment management solutions with our newest acquisition, Taliance, where we have a fully integrated offer. So this is honestly for me, 2019 is continued globalization, led by these largest customers.

And we’re closing deals already, and we’ve got a great pipeline.

Okay. And so when we think about those global customers and the decision to go global from regional deployment, what’s kind of the internal process or the internal catalyst that has to happen for them to do that?

Is it something on your end to prove? Or is it something on their end in terms of infrastructure?

Any kind of sense on that would be helpful, and I’ve got a follow-up.

Like what with the companies I just mentioned are what I would call the thought leaders. And they’re the most aggressive.

They’re the ones that are thinking about collecting their data on a standard basis. They’re becoming references for others to do it.

A lot of people are looking at it. The driver is consistent global valuation, consistent global data, the ability to look at your investments on a normalized basis.

And companies are doing it. And not only have we great references with some of the best companies in the world, it’s incumbent in our sales organization to drive it forward.

And in Europe, we’re starting to knock down some of the leading players in that market. And so we’re moving on this.

And just remember and I’ll say it again, we replaced a high significant amount of upgrade revenue just four quarters ago, with new customer revenue and same customer growth. So I feel pretty good about where we are.

And we feel really strong, once we get ARGUS in the cloud, it gives them another reason to deploy ARGUS on a global basis.

Excellent. Okay.

And just shifting gears a bit, I wanted to ask more about Taliance. Can you talk a little bit about the integration plan for that software package?

Can that fully integrate now with ARGUS Enterprise? And does that that by implication, if so, suggest that now you have a true enterprise platform that you can bolt on new acquisitions to quite easily?

Or am I getting ahead of myself on that?

So the biggest deal we did in the quarter, last quarter was an integrated Taliance, ARGUS Enterprise, Voyanta managed service transaction that we will – we have an agreement with the customer to be a partner in building that integration on a project basis. And it’s really where we would have liked to have told you otherwise, but we didn’t get approval to talk about it yet.

We were in the future, but that is – we’re in flight. And we’ve already been working with Taliance for the last year in partnership.

And we’ve got a great development team in France that one of their key priorities is to develop the integration framework with Taliance, which gets what, attracts new ARGUS Enterprise users. Because it moves upstream in terms of financial systems and reporting and investor management.

And so look, all of this comes together in a really nice way. And part of our goal of developing our cloud applications is a big part of that is to create modern APIs with partners, but also within our own development shop.

As we either acquire or build capabilities, we’ll do that through modern APIs. And so team’s full on on that already.

And we’re not doing it for the future, we’re doing it for deals we’ve already closed.

Okay. Excellent, that’s very helpful.

I appreciate you taking my questions. I will pass the line.

Thanks, Deepak.

Thank you, good evening, guys.

Good evening.

I just wanted to get some color here on the margin outlook for 2018. So obviously, Q2 coming in quite strong, notwithstanding the top line, which was a bit more modest as well as the investments.

And I think you referenced that you have full investments – you’re reflecting the full run rate of investments. So I just wanted to get some color on how you expect the margins to evolve in the back half of the year, in light of further investments as well as implementations?

Well, you said two things. You said the back half of the year and you said 2019.

Look, I’ve said it all along, like our goal is to – we did it before when we bought Voyanta and doubled down on Europe. We made a one-two investment.

And we got our margins back in 12 months. We want to put – we don’t want to actually put all this capability in, and then take it out.

This is our new cost base. And what we want to do as we’re going into 2019 is outrun the cost base with closer to high 20 margins.

We said that before. Last time we did it, we rolled into the 30s.

We could see because of, and I’ve told you this for 2018, that these large deals could have an impact on margin and on any particular quarter. But our expectation, leaving any changes in our pricing strategy aside, is to really move back to normal margins, normalized margin in the higher end of our 20 to 30 guidance, and make this part of our cost base, as we go forward with a lot more products to sell.

And so we’re – like Taliance is an investment as well, like in – it’s not going to be a significant margin contributor in the back half of the year. But we believe, not unlike our investments in the cloud, we’re going to sell the shit out of this thing.

And we’re going to have an opportunity to really make that again part of our cost base. And so that’s what we’ve done for five years now.

That’s what you do in a growth company, and we’re going to do it again.

Yes. That’s fair.

That’s good color. Thank you.

And then just turning, shifting a bit here to the tax business. You mentioned some delays in the Ontario appeals process.

Is that something that’s just isolated to Q2? Or is that some change in how your backlog is evolving over the next couple of quarters?

So I’ll let Angelo pile on. But I’ll remind you, it doesn’t mean the revenue went away.

So when I talk about 2019 and where it goes, they changed their approach. They changed their methodology at the Ontario government about how they want to deal with appeals.

And every quarter that goes by that they don’t actually deal with the volume of appeals, creates a future opportunity that is not going away. And we’ve got a great first half in tax, a combination of UK this quarter and BC, which we talked about and managed over last quarter.

And we’re not giving up here. We’re ahead of what we probably guided.

But we just wanted to let you know that it could have some impact on Q3. It still is as one of our biggest jurisdictions.

But hey, we’re starting to see the benefit of our investments, the size of our business. And frankly, every quarter that goes by and 2019 is looking better and better.

I don’t know, would you add anything?

I would just say that it’s a new process for this year. And so with many new processes, there’s a bit of a start-up phase.

And we’re just – we’re in a bit of a holding pattern. We’re not – we haven’t been selling as many appeals.

But again then, the number of deals remain, and it’s just a question of timing of when. And so really, all it does is it creates more opportunity as we move forward into future quarters.

There’s a bit of a lag, but it’s just because it’s still early days.

Yes, right. Okay.

That’s very helpful. Thanks guys.

Okay.

Great, thanks. Could you talk a little bit about how you’re thinking about further M&A, given just having completed Taliance and then before that, CVS, where – what your comfort level is on further deals?

Thanks.

Well, we like tax deals, there’s stuff that’s going there. It’s not imminent, but there is some interesting things.

And there is some – other related technologies that we’re tracking, reasonable-sized companies or smaller that could fill out our white space as an alternative to pure development. And although we stretched it out a little bit from where we’ve been at previously, if we see good acquisition opportunities, we’ll definitely not let them go by.

And so we’re still active and we’re looking. And as you go global, it shouldn’t be lost on you that we did the deal in Europe to build up capacity with Taliance.

It was just such a great deal because in one fell swoop, we have an opportunity to have capability in the French market for ARGUS Enterprise. We got a leading cloud application, we got a great leader, we got another development capacity, and we got a faster growth in Europe.

And so part of we’re looking at is other European opportunities that would be complementary to our own development efforts.

Great, and then actually one quick last one. On the sales force and selling a, your Altus Analytics into Europe, what changes did you make to the sales force, Bob, in terms of approaching your sort of go to market this year?

And where do you think you are in terms of evolving that sales force? Thanks.

We added capacity. We set up a global – like a global account and a strategic account team with some of our best talent.

And we got an amazing team in Europe, led by Cassian Scott. These are guys that over enterprise thinkers.

They’re selling at the CEO level, wherein it’s kind of funny, because in my mind, the U.S. was really critical.

North America was really critical to keep our standard move from DCF to AE, which we accomplished. But it was more upgrade selling than value selling, while the guys in Europe were value selling.

Now we’re going back to these U.S. and Canadian customers and we do value selling.

And they’re learning from the European guys about how to do that. And Taliance really helps in that regard, as does Voyanta.

So, now, we just added more capacity. We brought in some talent in, and we bifurcated on some of the larger customers.

And we actually have people. For example, we’ve got people at it, are in marketing in France and Germany.

Fantastic. Thanks, guys.

Hi. So I just wanted to touch base on the strategic initiatives you mentioned briefly with your new tax platform underway in CRE Consulting.

And then also you mentioned enhancing expert services with data and technology. It sounds interesting.

I think you’ve spoken about it broadly before. But I’m just wondering, it seems that that’s more imminent now.

So wondering what’s going on today and where you think this is going over the next year or so, and then how you plan to use that competitive advantage for the longer term?

Okay. So we hired Carl Farrell at the beginning of the year.

And he has been unbelievable in really focusing on the advantage of platforms, machine learning, artificial intelligence, data recompilation, the use of data across other businesses, and has doubled down in the focus on the deployment of these applications for value, not to replace all processes for value. And he’s done an amazing job of that, increasing dates and accountabilities and priorities.

And we rolled out our tax platform in Canada broadly, not completely. And the benefit of that is going to come in productivity, data reuse, the ability to forecast better.

And remember, we have a high share here, high margin. And so this is going to also create stickiness with our consultants, because it will be part of the tool that makes them successful.

So it not only in tax, but in RVA and cost, we’re exploring this kind of capabilities to improve the way we do business, but also to be a data contributor. And Carl’s been amazing on this.

He’s taking it from what I would call, really a modern thinking to a place where it’s going to be incredibly strategic and highly valuable for our company. Angelo, would you add…

Yes, I would just echo that and say that I mean, there is, what I’d, a strong focus on delivery execution. And with the tax platform, once we get it rolled out across Canada, and we’ve actually started some of the planning, is to tailor it and roll it out into the U.S., which then allows us to grow much more quicker from an organic standpoint and be able to really drive the efficiencies with – we’d be able to do more with less resources.

And so that’s the strategic advantage of really rolling out these platforms, as Bob talked about.

So is the focus of that in addition to helping this productivity, forecasting, et cetera, also to track talented consultants to your platform?

I mean, that’s inevitably part of it. It’s to create an environment, where the ability to get institutional knowledge and keep it becomes integrated with the basic technology platform.

You still need the expertise, you need the people. And it becomes part of an information service of business.

But it also, done properly, we see cross-selling opportunities. We see cross-data sharing opportunities.

We see benchmarking opportunities. Always remember, tax’s a benchmark on – sorry, it’s a proxy on expenses.

And so we see it as a way of doing business as we create capabilities that serve the largest commercial real estate players in Canada and the U.S. and the UK.

Okay, that’s great. Thanks very much, gentlemen.

Okay. Well, thank you very much.

Appreciate all everybody joining today, and thanks for the support.