Altus Group Limited

Robert Courteau - CEO & Director Angelo Bartolini - CFO Carl Farrell - President & Non-Independent Director Camilla Bartosiewicz - VP, IR

Richard Tse - National Bank Financial Maggie MacDougall - Cormark Securities Inc. Daniel Chan - TD Securities Paul Steep - Scotiabank Paul Treiber - RBC Capital Markets Stephen MacLeod - BMO Capital Markets Deepak Kaushal - GMP Securities

Thank you. Good afternoon, everyone, and welcome to Altus Group's Third Quarter of 2018 Results Conference Call and Webcast for the period ended September 30, 2018.

For reference, our earnings results news release was issued after market close this afternoon and is also posted on our website along with our MD&A and financial statements. Please visit altusgroup.com to obtain these documents and for more information.

On today's call, we will begin with an overview of our performance during the third quarter, including a discussion of our financial results and noteworthy developments. We will finish by taking questions from analysts and institutional investors.

If we miss anyone, please contact me directly after the call. Joining us today is our Chief Executive Officer, Bob Courteau; our Chief Financial Officer, Angelo Bartolini.

And Carl Farrell, our President, is also here. Before we get started, please be advised that some of our statements today may contain forward-looking information.

Various factors and assumptions were applied or taken into consideration in arriving at the forward-looking information that do not take into account the effect of events announced today. There are also numerous risks and uncertainties that could cause actual results to differ materially from those that are set out or implied by such statements.

These are all described in the company's filings on SEDAR. Our comments and answers to any questions must also be considered in the context of the disclosure in those materials.

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

Thank you, Camilla, and thank you all for joining us on the call and webcast this afternoon. I'll start off today with some highlights of our consolidated financial results followed by a deeper review by business segment.

Starting off with a quick recap of our Q3 consolidated performance compared to Q3 in 2017. Revenues grew by 3% to $120.6 million, driven by good performance at Altus Analytics and Valuation and Cost Advisory.

Adjusted EBITDA was down by 29% to $16.5 million, impacted mostly by Property Tax and continued investments at Altus Analytics. Profit in accordance with IFRS was a loss of $1.7 million compared to a profit of $7.3 million.

The big driver in the change in addition to lower adjusted EBITDA was the increased employee compensation and amortization of intangibles from recent acquisitions, offset by decreased income tax expense. Adjusted EPS was $0.22 compared to $0.34 last year.

Moving on to our Q3 performance by business segment. Our Altus Analytics business had solid performance, especially after another strong compared last year that saw a spillover DCF upgrade revenues.

Revenues were up 9% to $44.1 million, driven by higher license subscriptions, maintenance and appraisal management revenues, including the acquisition of Taliance, which added 3% to revenues. Recurring revenues as defined in our MD&A disclosure grew by 23% to $34.2 million.

We continue to see strength in the demand for our products, and it's very exciting that this week we launched ARGUS Cloud and ARGUS Acquire. Bob will talk more about our cloud strategy in a moment.

Overall, we expect to see continued growth, and given the strength of our pipeline, looking out into next two quarters, we expect Altus Analytics revenue growth to be in the mid-teens to low-twenties. Adjusted EBITDA was down 15% to $10.1 million, reflecting increased investments for software product development activities, including cloud functionality and the integration of Taliance.

We continue to focus our investments on areas of the business that drive long-term growth, while delivering strong operating margins and cash flow expansion over time. We experienced EBITDA margins of 23% as expected while in this growth phase.

Positive FX changes benefited revenues and adjusted EBITDA by 3.6% in the quarter. Commercial Real Estate Consulting revenues increased moderately to $65.3 million, Property Tax revenues were flat at $38.9 million, while the Valuation and Cost Advisory revenues grew by 6%, rising to $26.4 million on good performance for - from our Canadian cost advisory practice.

From an earnings standpoint, CRE Consulting adjusted EBITDA was down by 41% to 11.2, down by 53% to $7.2 million at Property Tax and up 8% to $4 million at Valuation and Cost Advisory. Our performance in Property Tax reflects the government process changes in two key jurisdictions, mainly Ontario and the U.K.

As we discussed before, both jurisdictions have undergone significant change in the scheduling and appeal settlement process that is currently causing a deferral of case settlement, and consequently, a deferral of case completion and revenue recognition for us. I'd like to stress that the economic value of our pipeline of appeals remains intact and the full revenue that we expect to book in the future.

Our expectation is for strong growth next year for Ontario and the U.K. Accordingly, on a consolidated basis, we expect record revenues for 2019 in Property Tax.

I would also like to point out that as a result of the reduced case settlements at this point in the current cycle, the spillover of unsettled cases into the next valuation cycle stands to be significantly higher than what we have experienced in previous cycles. Overall, we continue to be very excited about this business.

Despite some of the current variability, we are growing our market share as is evidenced by our growing revenues, which are up 18% on a year-to-date basis. We are adding new technology to our business to drive efficiencies and appeal effectiveness.

And we continue to see opportunity to significantly grow market share in North America and the U.K., both organically and through accretive acquisitions. At Geomatics, despite ongoing market pressures in oil and gas, we improved adjusted EBITDA by 22% to $1.8 million and margins improved to 16%, while revenues declined 10% to $11.3 million.

Finally, in our corporate division, corporate costs were $6.6 million, down from $9 million last year. Lower variable compensation and the benefits of an Ontario media tax credit contributed to the improvement.

Corporate costs as a percentage of revenues were 5.5% as compared to 7.7% in the same period in 2017. During the quarter, we monetized our Real Matters investment for net proceeds of approximately $54 million.

While we continue to be supporters of Real Matters, the investment was not part of our long-term strategy, and we opted to use the proceeds to reduce that. The debt repayment was completed shortly after quarter-end on October 2, 2018, at which time our bank debt was reduced to $131.1 million, representing a funded debt-to-EBITDA leverage ratio of 1.72x compared to 2.28x as at June 30, 2018.

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

Thank you, Angelo. I appreciate the summary.

But this is an exciting time for Altus Group. On the back of a strong first half of the year, and although we faced some tough year-over-year compares in Altus Analytics from 2017, while we benefited from conversion sales, I'm pleased with the financial performance in Q3 and the progress against our strategic initiatives.

Our results underpin that Altus Group is in growth mode. And personally, I remain very excited about the growth opportunity ahead for our company.

Now more than never, our convention stands from more than just shaping - changing market dynamics, but from tangible and resilient client demand. And we're working hard to accelerate our strategy, while investing responsibly to sustain this unique market advantage that we've created.

At Altus Analytics, we continue to put up solid performance, while scaling the business for a global opportunity. 2018 has been truly a transitional year for Altus Analytics on many fronts.

From changing our sales focus from a departmental IT sale to selling more enterprise solutions to the C-Suite, while sharpening our focus in sales force are new markets, new applications, integrated solutions, increasing wallet share and now the cloud. We've also been modernizing the roadmap with these new cloud capabilities.

I'll talk about that in a minute. But compared to last year, growth today is fueled by a broader range of revenue stream.

Certainly, it'd been a busy year, but we continue to outperform on last year's excellent revenues and have successfully refocused the business on the opportunities ahead. While there still remains a lot of work ahead of us to offer our clients integrated cloud solutions with data capabilities, we've come a long way and I'm pleased with what the team has accomplished.

We really do have the best team in the industry. Having protected our core, and more importantly, established ARGUS Enterprise as the global standard in the CRE industry, we continue to have excellent momentum in ARGUS Enterprise add-on sales, which now make up 2/3 of our sales, and with our global multiproduct sales strategy as we see rising demand for enterprise integrated solutions and growing interest in global deployments, particularly from our top 200 clients, who are amongst the world's largest commercial real estate investors.

These integrated solutions consist of ARGUS Enterprise, Taliance, Voyanta and appraisal management technology solutions. The recent announced global enterprise agreement with Allianz group is the evidence that we're switching gears and driving larger enterprise deals across borders and offer multiple capabilities.

Those - though these deals take more time to complete, our pipeline is full, and we remain optimistic that more companies will opt in for this integrated solution, especially as we roll out these cloud applications. We'd also continue to make inroads in new international markets and in reaching new customers from other segments of the industry, such as increase in our penetration from debt funds and private equity.

And our appraisal management offering continues to be a strong contributor to growth, particularly as we make it a data-driven offering. As we go forward, having just launched our ARGUS Cloud platform, we expect to see an increasing contribution from new cloud applications, and accordingly, our revenues will be more skewed towards recurring revenue as defined in our MD&A, building on the 23% revenue growth in the quarter.

As evidenced by the healthy adoption of our ARGUS On Demand offering, which now stands at approximately 800 firms, this includes both ARGUS Enterprise and ARGUS Developer, we're encouraged by the market opportunity for new innovative cloud solutions. On Monday, we announced the launch of ARGUS Cloud and ARGUS Acquire, our new web-based app, the first of many more to come.

Let me take a couple of minutes to talk about this. ARGUS Cloud is the umbrella term that covers a few concepts.

It's the cloud infrastructure that includes all the functionality to power new ARGUS web application. It's the bridge that links the ARGUS Enterprise on-premise models to functionality in the cloud.

It's also the component that will, in the future, provide a cloud-based integrated solution across all of our current cloud offerings, including Voyanta and Taliance. And it will drive global standards, and therefore, by releasing ARGUS Enterprise in the cloud, we are going to sell more ARGUS Everywhere applications, both ARGUS Enterprise and ARGUS Cloud.

For clients, it provides them with cloud storage and gives them the ability to pull our AE models from the cloud and provide ARGUS functionality in the cloud, including calculating models, retrieving results and more as well as the generic functionality like user management and authentication. With the launch of ARGUS Cloud, we're creating a connected ecosystem for the commercial real estate industry by delivering innovative cloud-based solutions that provide complete portfolio transparency and insight.

This is the key part of our product and partner strategy and the next step in the evolution of our software products. This is just the first step in our plan to build additional end-to-end applications that will streamline business processes, leverage third-party data sources and reduce complexity within the CRE industry.

Our plan is to deliver a series of web apps that leverage a portion of ARGUS Enterprise functionality to address specific business problems for different market segments. The first step we decided to focus on was target towards the acquisition process.

ARGUS Acquire is a deal management solution focused on acquisition teams and their need for tools to manage pipeline and deals that provides complete top-down visibility of acquisition deals and pipelines, creating greater efficiency and consistency, while allowing them to conduct what-if analysis. We did a huge amount of research, nearly 100 calls with acquisition professionals to understand the acquisitions process from their point of view.

So when it comes to innovating, we're doing so from the position of strength, and we're not guessing on what to build next. We have an amazing development team at Altus Analytics.

They meet their deadlines, led by Steve Bezner, who continues to hit all of the dates of their product releases, and he and his team have shown tremendous innovation in how we look at our product roadmap, and I wanted to thank the team around the world for their amazing contributions in the past, and certainly, with the release of cloud. Overall, we feel really good about the next phase of growth for Altus Analytics, our sales pipeline remains strong and global demand for offerings is on the rise, which will put us back on the path to double-digit top line growth.

As Angelo pointed out, looking out in the next couple of quarters, given the strength of our pipeline, we expect our Altus Analytics' revenues to grow in the mid-teens to low-twenties percentage range, which also applies to recurring revenues as we look at hybrid growth here. Altus Analytics continues to have a long and global growth runway ahead, and we will continue to invest in this opportunity in modernization of existing products, in development and sales capacity and in the products and offerings.

As you know, we have a clear line of sight on returns, and we will continue to invest responsibly to sustain our market leadership and deliver a future of profitable growth. Let me talk about CRE Consulting.

Given our market leadership in our key practice areas, we continue to benefit from strong client retention and prominent project wins and would particularly like to acknowledge the strong contribution from our Canadian and Australian cost practice and the good performance this year. Given our brand and market leadership, we are the go-to-company for developers, lenders who have benefited from the construction activity across the country.

On balance, it was a good quarter, although the quarterly variability of our Property Tax group was obviously very pronounced. The decline in Q3 was not surprising given the process change in two key markets that Angelo discussed.

I wanted to give you a little bit of insight on this. The number of hearings for Ontario in 2018 has been down substantially.

Of the current rule, there has been less than 20 hearings scheduled in 2018, put that in perspective. In a good year, we would expect 2,000 to 3,000 hearings.

And hearings are important because they force settlements and allow us to win the large contingency deals. We see signs now that this is an understood problem, and the seriousness of the backlog is starting to unfreeze the need to start settling cases, but what it does is allow us to have very good visibility into 2019, thus the comments from Angelo previously.

So although this has caused a delay in settlements, we're not concerned because, as Angelo stated, the economic value of the appeal pipeline remains in place. In fact, it stands to increase potential revenues as we tend to do better in a compressed cycle with our contingency agreements.

Property Tax continues to represent an attractive growth area for our business, both in the U.S. and U.K., you've heard me say that I love this business.

We are poised to have exceptional years in 2019 and 2020, and we will continue to augment our growth with acquisitions as the opportunities rise. As you know, we are laser focused on share growth, particularly in the U.K., and that's a big part of our strategy.

We're building this business for the future. And we're also benefiting from a higher shift to contingency revenues, which gives us good upside.

Long term, Property Tax will benefit from investments in technology that'll automate parts of the assessment process, give higher value to our clients and will leverage our data for new applications. Probably, it took longer than I needed to.

Let's open up the line for questions.

What's giving you guys the confidence and visibility that AA will grow in the mid-teens to low-twenties in the next two quarters?

With the shift to enterprise deals, we've got pretty good visibility on larger transactions that are both multiyear transactions that also delivered some of that top line growth that we're looking for. And so look, we wanted to make a strong statement as we came into the quarter.

So we have fairly high confidence from our pipeline and deals we're working on right now. And so we thought we'd share with you.

So it sounds like there may be some - a good recurring revenue bump. Should we expect any kind of headwind from the ValCap upgrade, they're like coming up at the end of the year, and seeing a similar recurring revenue headwind as what happened with - after the DCF upgrade cycle?

Absolutely not. We've already moved most of the key customers.

They are part of our 2/3 of same customer growth. We're seeing really good secondary market pickup from those customers.

We don't have the same program where we had to pull away maintenance like we did in the U.S. So, no, we're not going to have that same value that we have to navigate through late 2017, early 2018.

Okay. That sounds good.

And then I want to shift over to the Property Tax business. So I just wanted to understand the margins here a little bit because the Property Tax revenues this quarter were very similar to the year-ago quarter, but the margins were far worsened.

I think, last quarter, you guys talked about taking out some costs from the CVS business. So help me understand why the margins were far lower despite having similar revenue levels?

And why should we expect some of the margins to expand from the CVS integration?

Well, if you look at the Ontario business, we basically are carrying a pretty good expense load on low revenues. And then in CVS, we basically called a year where we - they wouldn't contribute or U.K.

wouldn't contribute significant profit because we're going for a share. We put a big - we left a big cost base in there.

And frankly, on a full year basis, we've been conditioning like we thought. Obviously, we didn't get it perfect, but we've been conditioning that there could be some risk.

But on a full year basis, we're 18% revenue growth, decent growth in EBITDA against the backdrop where, as I told you on the number of hearings that have been settled, like we're not getting a contribution in that current cycle. So all that adds up to a tougher compare on EBITDA.

I don't - Angelo, do you want to add anything?

No, that is precisely it. I mean, largely, it was driven by the CVS acquisition.

Most of the growth in the quarter from a revenue top line standpoint was CVS driven and with a neutral impact on EBITDA. So that drove margin down.

I mean, we've been trying to call people to 2019 maybe in a cute way to get them to understand there was risk in 2018. But the reality is that, all of the economic value is still there.

It hasn't been realized in Ontario, and it's going to set up a pretty strong cycle in the back half of the cycle, and as Angelo said, it'll allow us to likely smooth out into 2021 as well.

So I wanted to discuss the ARGUS margin or the analytics margin rather. So in the MD&A commentary, reading through it, it sounded like investing in cloud functionality was presented as part of the reason for the year-over-year decline in revenue, but considering that you had what sounds like 22.7% recurring revenue growth, does it also maybe have something to do with the fact that you didn't have as much contribution from license deals in the quarter?

Or is there - is it simply just that there's an investment happening in this segment and you haven't run that yet?

Yes, you want to go ahead.

Sure, absolutely. Yes, it's a bit of both.

The licenses were down as we shifted to more subscription-type sales. And we are making the investments.

And so that - as you would've seen, even earlier in the year, it was causing margins to drop as we work through. Our expectation is over time that those margins are going to come back to sort of normalized levels that we've experienced before.

Yes. We've always talked between 20% and 30% margin.

We put a huge investment in cloud. We delivered on the dates that we were talking about.

And we're moving to a hybrid model where you're doing recurring - more recurring revenue with pressure on the normalized revenue, right. And so it's a definitely tight row back.

We feel pretty good about doing that - getting the growth across recurring top line and holding the margin above 20%.

Okay. And then just for clarity.

So it sounds like in your recurring revenue growth description at the beginning of the MD&A that you've basically isolated the percentage figure that you're providing in the commentary to make it comparable with how you've supported in the past before the new IFRS 15 standard came in. Is that right?

Yes. The recurring revenue number is on the same definition as previously under IAS, correct.

Okay. And then you also mentioned around the U.K.

Property Tax...

Well, Maggie, let me just sort of - let me just - it's similar to how we pointed in the MD&A and how we had a sub-line, if you recall, in our disclosures that talked about recurring revenues in past years. So with that methodology, I encourage you to just look at the definition if there's any questions around that.

Okay. So all I was about to ask was just the comment you made in the MD&A on the U.K.

process change. So the Ontario one that you've talked about, which has bogged down the settlements.

I think people knew that, that had gone on last quarter and the U.K. process change sounds new.

So I'm wondering if there is something worth commenting on there, more detail that we should maybe know about.

Well, look, these two make up a high - the largest percentage of revenue. We have talked about the U.K.

all the way back into 2017 as being a problem or being - having some challenges in terms of getting ramped up. We have - we had - the U.K.

had a really good start at the beginning of the year. We were - it was okay in the quarter, but it's not contributing the EBITDA because of our goal to really go after share, right.

So it's not going to save the day. And what we're going to be able to do is push the agenda when we talk about taking cost out.

Our plan is to keep the selling and marketing expense on and to really outrun it with revenue as we go forward. So that's part of one of the things that's going to drive the 2019, 2020 success story.

We just got to run a bigger cost base. And so I think that the story in the U.K.

is a little bit different than its complexity. But if you look at our tax business overall on a year-to-date basis, pretty damn good with two - with our two biggest jurisdictions completely underperforming the potential and it sets up that success that we have in the future.

I don't know if I...

Yes. I'll just add to that.

We have spoken, Maggie, previously about the new processes being the registration process that they refer to it as a gateway process, which takes - it's a longer process now to sign clients up, get them registered and then the whole check challenge and appeal process that's taking place. What we saw earlier - what we continue to see into last year and into the first half of this year, but what's been declining sequentially has been cases from the last cycle.

And so we're just not ramping - we haven't been able to ramp up because of all these new processes quickly enough to offset some of the declining volumes that are happening from the spillover of appeals from the last cycle. And so when I talk about what's causing - what the impact will be of this deferral of these delays, it basically jams up the current pipe, and we'll just have a larger base going into the next cycle.

So the appeals haven't declined, what we ultimately settle has not declined, the value has not declined, it's basically just pushed out further.

Okay. And do you have visibility at all on when in Ontario, in particular, the backlog might start clearing out a bit?

What we're hearing from our folks in the frontline is that they are starting to see more hearings being scheduled. So we're starting to turn the corner.

It's not going to be a rapid - it's not rapidly going to come back to normalized levels in this next quarter, but we're going to see a sequential uplift going forward.

Yes. And the only thing I would say is that we have really good visibility going into 2019 with an overall view, with a really strong position, particularly, in the U.K.

for Q2. And we think that it'll pick up right up until - start picking up towards Q2, and then Q2 through the rest of the year is what's going to drive a very successful performance.

Clear performance.

Bob, thanks for the description of the cloud platform. Maybe you or Carl could talk a little bit about what you've done on the field side to start to get the team ready to sell more cloud and recurring-based business and sort of start to condition clients for this?

Yes. We've just finished the whole round of sales training and sales enablement.

We took our North American sales teams for 1.5 days through all the new technology, the stacks, the explanations, the differentiation. We did the same with our European teams two weeks ago.

And then followed it with certification programs for the sales teams as well. So we're putting a lot of more efforts and materials in the hands of the sales team, so they've a lot more understanding of the technology and the differentiation and how it benefits the clients.

So we think we're in a good place to begin the rollout the end of this year with the cloud parts as we start selling aggressively in 2019.

Great. And then, I guess, I noticed that you updated some of numbers on AE clients and AOD clients in the MD&A.

Can you maybe talk a little bit about what you've seen geographically? I know that was a focus for Bob and Carl both in terms of driving more international wins that you referred.

Can you maybe give us a little bit of insight there?

Well, I'd - yes, go ahead, Carl.

I mean, we've seen quite a very strong increase in our European pipeline relative to what it was a year ago, good consistent pipeline growth in the U.S. I'd see a lot of new customers, probably even percentage-wise, and growth customers in a mirror at the moment, but again, strong pipelines on both sides.

Yes. And the only thing I would add is, why that's exciting is that European customers are new customers, which are large transactions and not unlike Allianz, we're selling their Global Asset and Investment Management transaction, which combines Taliance, Voyanta, ARGUS Enterprise, ARGUS Everywhere.

And they're taking it because they understand that cloud is going to be the glue that allows and pull us - all us together. So honestly, the 2018 running 2017 performance, a lot of that has been our European team.

And I also should say that our team in Singapore has done a really good job. We had a nice quarter in Australia.

So again, our pipeline is richer by geography, by product type. We're seeing some of the products like Taliance and Voyanta kicking in to give us recurring revenue.

It's a really, really nice balanced business now. And obviously, between Angelo and I, we have the confidence to talk about what that's going to look over the next couple of quarters.

And then I guess, the last one that ties to that Bob. Maybe talk about the acquisition process and why that was the logical web app to maybe start with that you think hopefully can maybe open up some more opportunities beyond one module to start?

Yes. It was a good module for us to develop first.

It builds on the functionality of AE. We put some very core functionality in the cloud, ARGUS Cloud, straightaway.

Acquire sits on top of that functionality. It leverages the ability to take a model through the acquisition process to do what-if analysis.

Such as great integration for our current AE clients and a natural step forward for us with those clients as well. And then we'll continue to build on that functionality as we go forward.

For a great step forward, an easy module first to link into AE to prove out the technology to get confidence with the cloud base, and then we'll go from there with the next set of modules.

Yes. And what you need to know in terms of the acquisition teams, these are the guys that are at the top of the house now.

They are the most busy, they are the most competitive, they are the ones that are looking for functionalities that's going to make their job better. They want the analytics to go with them.

So it's natural to extend our offering, but there's also an insurance team medium-term opportunity is that we think that we can extend Acquire to the sell side, to the broker side over time where we can start managing the hundreds and thousands of investment brokers that want to submit ARGUS Clouds to these acquisition departments and create networks, connect data pipes between them. So it's just a really exciting breakout technology and we can start with basic technology and then really move into global work processes.

I just wanted to just sort of talk about your sort of the outlook over the next couple quarters, and obviously, you're expecting a pick-up on the revenue side. Can you just talk a little bit about how that growth is weighted between recurring and nonrecurring?

I mean, Is it mostly recurring at this point?

Stephen, this is Angelo. It's quite - it's actually quite a balance where we're still seeing strong recurring revenues where licenses - again, we've made more of a shift towards recurring and subscription, but it's still a healthy pipeline even on a perpetual standpoint.

Okay. So would it be fair to say with, I guess, sort of 50-50 recurring and nonrecurring, I mean, would you expect to be sort of at the mid to low end in terms of margins as you roll into the back like Q4 into Q1 and then maybe begins to accelerate it in 2019 and levered some of the investments that you've made?

Well, I mean, if we put up these kind of numbers, I think you're going to see the margin creep up a little bit. And the real test around that is just exactly how the mix shapes in, right, because obviously upfront license contributes more in the quarter, right.

But look, I'm not shaking off my - the idea that we won't operate between 20% and 30%, and we're not giving - we didn't give guidance on the full year for Altus Analytics because we're not there yet. But if you listen to what Angelo said, we think that there is an opportunity to really develop this business in a way where we're going to have significant balanced opportunities down the road.

So I don't know if I'm not - I think maybe I'm not answering the question right. We feel pretty good about the business in the next couple of quarters, and conversely, just to be clear when you talk about Property Tax, we're not out of the woods yet on some of - the cycle in Ontario and the risk in the U.K.

We had to work through that. In the last couple of quarters, there are signs it's coming back to us.

But even if we are soft in Q1 as an example, we know by our kind of pipeline for Q2 and the rest of the year that it's going to open up. We think it's going to open up earlier just because of the workload that's being created by both these jurisdictions and the pressure on them from both customers and the market in general that it could come back faster, but we're - we have good visibility on Q2 and farther on how that's going to deliver a great year just by the compression.

Stephen, just I'll finish this. Given the results in the quarter, we wanted to have - we wanted to give conviction about how this has been planned.

And I've been talking about 2019, 2020 for 3 to 4 quarters now.

Yes, I know - I think that's definitely going to be helpful for the market. And then just on the Property Tax business.

So what exactly is it that caused - I mean, that's a pretty dramatic dropoff in the appeals from 2,000 to 3,000 to less than 20. What exactly caused that to really seize up in the pipeline?

This is what happens when you hire consultants. It's two stories like they reengineer their process to bring more control to the process and they brought in some outside people that may not have completely understood what's going on.

They - and so - but look at - the guys that do this understand what's going on. There, we have a really good relationship with them.

They do great work. But now they're behind the APAL, and they're trying to sort out how to get this back on track, and that's why we have some confidence that it'll start free - opening up here, certainly, going into Q2 next year, but even - perhaps even earlier.

And I'll just jump in real quickly. There - it's a pretty well-defined scheduling process that exists now, whereas before, it was a little bit more fluid.

So now you have great visibility, very early on, which cases, which appeals are going to be heard when. So there is a lot more formality to the process.

So that would give you, in many cases, more conviction around?

It gives us greater visibility and greater conviction, yes.

Okay. That's helpful.

And then just finally, if I could, Bob in your prepared remarks, you mentioned in Altus Analytics you're growth today across a broader range of revenue streams. Obviously, we know the components of it.

But I'm just wondering if you had any color around sort of where you're seeing acceleration versus deceleration in terms of the more diverse revenue streams that you have now?

Well, we've completely replaced the upgrade revenue in the U.S., which was a huge part of our high percentage. By the end, like, if we go back to 2016, it was 60% of our revenue; in 2017, we got it down to 35%.

We also had big spikes in Q2 and Q3 because we were near the end, and it's gone. And we're putting up pretty good numbers holding our margin, and now we've got a whole different set of products to come out.

So the big - for me, the big - the biggest opportunity, the most exciting one is to sell everything we have to the biggest companies in the world and get them to put ARGUS Everywhere, right. So companies like CBRE GI, Blackstone, Allianz Now, Invesco, these are companies that are now pushing ARGUS to all parts of the world so they can have consistency, global standards around data and the like.

Cost just enhances that. The big thing on cloud, obviously, we think we're going to sell a lot of cloud applications over the next couple of years.

But it reinforces the value of an on-premise ARGUS Enterprise solution because now you can take your files and put them up, share them inside your company, share them with your partners to integrate them with work processes where we're going to have a modern way of integrating with our partners. So it just increases the value of on-premise, and then, again, creates a new revenue stream.

I know it's late, but I've got about 3 of them. And the first one, I'll beat a dead horse, if I may, on Property Tax.

I think, Bob, you mentioned just in the previous comment, the reason for the process change was for more control on the process. Do you get any sense that there is a kind of intent or a desire by the government to reduce the value of settlements or reduce the number of successful claims?

That is always the desire of government.

I mean, is it - like at what point do you claim it's - say, okay, I waited long enough, I'll just settle for less, is this riskier, like how should we understand that?

No. That's why they hire us.

So you don't end up in that situation. The longer they go, the evidence - our history shows that we do better later in the cycle because they got to get on to the next cycle, right.

They only have a certain amount of capacity to do the work, and if it gets compressed at the back end and they start thinking about the next cycle, they can't - it's hard to actually really create a credible defense because we've got great data, we're getting better at it. So no, absolutely not.

However, I don't think MPAC actually or the Ontario Government did try and get a better value or a better tax outcome for them, I don't. I think they honestly were legitimately trying to bring order to the process, create good visibility, good outcomes, good decisions.

In the U.K., yes, I kind of think that they might have been trying to actually find a way to make it hard for people to appeal. The - some of the steps that they put in place seem that way.

So that - now the current government is working hard to change that view. But there may be some others in the market that would've believed that, that was what they were trying to do.

Okay. That's helpful.

So second question going back to Altus Analytics. You guys recently announced the Allianz deal for a global enterprise given.

Can you talk a little bit about the sales cycle there, how long you expect it to ramp? And was it SaaS, perpetual or mix?

Is there any managed service in there? Any kind of details you can give?

Or in general, the kind of the blueprint you have for global enterprise deployment?

Yes. It's a multiyear managed services deal with an implementation at the front-end that rolls out ARGUS Everywhere, drives the use of Voyanta for data aggregation, and then the presentation of data to Taliance for waterfall analysis, debt structure, just doing the modeling that they need to do at the front level.

So it's a tool that allows them to track their real estate assets at the single asset level, roll it in a portfolio and then do fund modeling. So it's a full end-to-end solution, of which we did a subscription deal with them, that's a multiyear subscription deal.

Any kind of quantum of what this type of deal could contribute. We're talking about mid-single digits, millions or going to double-digit over time?

How should we think about this in terms of revenue?

Sorry, in terms of a percentage of our annual revenue?

No, no. In terms of just - in terms of an enterprise deal, and I think, you have 200 customers as a target, how would you size that market in terms of annual revenue opportunity?

Yes. So a deal in the top 200 for core software, not services, because part of our strategy is to bring some of our appraisal management competencies into these customers, just pure software, these are $3 million to $5 million deals a year.

Okay, excellent. And then just my last question, Bob, if I may.

You guys, I guess, pulled the trigger on Real Matters for lack of a better term. Does that thought process kind of beat into your thinking around Geomatics, I know you've talked about that being noncore for a while.

It has been tougher for longer in the old-fashioned Canada. Any kind of thoughts on that and how we should be thinking about that?

Yes. I mean, we're on a track here to make the business simpler.

We're definitely looking at synergies where it makes sense. Carl talks about the group, and more and more, we want to invest and focus on things that create value.

So if we can take data out of tax and mingle it with data in our Altus Analytics business and create a better outcome for the common customers, that's what we want to do. While Geomatics is here, we've got a great guy leading it, and he is working hard to deal with the challenges of oil and gas, but obviously, we're overweighting technology and data and now the cloud software that fills up.

So as you look out here, is there anything in your strategy that would have you taking out variability in the Property Tax business or is that just something that - or sort of what you're thinking on?

I want to take out negative variability. I don't mind positive variability because the way the tax business works is you have a cost base, you move to contingency revenue once it gets past a certain point in a quarter where you have an above average number of appeals that drives a huge cash flow for of a company, right.

And the thing that we're going to - I think what we will do is, it'll always be an inherent variability in this business. While we are dealing with sales force, our tax platform, our appeal management system that we've now rolled out to most parts of Canada is get control of that economic cycle and be able to give good visibility about how it's going to come based on the prediction of volumes and historical settlement experiences.

And so that is going to - my personal opinion on why I love tax is, we should be able to improve the business overall, get more market share, get better outcomes for a customer through data, actually give predictability to the marketplace, which I think - we think will get a multiple increase and actually start using data in ways that are innovative, make it a technology platform, carl, why don't you jump on the back of this because you say this better than me, really turn this into from an expert services business into a...

It's really a managed service business driven by a lot of technology. The tax platform we've rolled out across Canada, it's end-to-end managed service now, and what it describes is a software-as-a-service.

So we're collecting the maximum amount of data that's extremely visible to our clients. There's a great client pool in there.

They can sign in and see where the appeals are. But it's a visible product for us in order to make it from end to end.

So we're looking for the future to be again very exciting, it would be a lot more efficient, a lot more visibility like Bob said than utilize it along with data and analytics on that platform.

Yes. I'll just - something we've always said is we've got to look at this business over a longer term.

You've got to add a minimum work at it on an annualized basis. And if you went back to 2014, '15, you'd see a very nice increase in both revenues and EBITDA and very, very healthy margins.

So we've experienced these types of quarters before, but if you look at it over the longer term, you'd see a very nice, healthy increase on both those metrics. The other thing I would say is there is a bit of a smoothing and we've gotten a little bit better from the variability, not great obviously, but better as you expand and grow market share, particularly, geographically because what you get is a little bit more of a smoothing because there is geographies - well, different jurisdictions have different cycles, different annual cycles to yearly cycles.

And so just that fact alone gives you a little bit more smoothing. By and large, it's been a very healthy business and it continues to grow and provide very good cash flows as Bob has said.

Okay, that's helpful. And with respect to the robust double-digit growth through analytics you're going forward, I'm just kind of curious on the mix.

What proportion will be sort of large enterprise deals versus new products like Acquire or cloud?

I think that the biggest - I think we'll have a healthy same customer that's brought from a geography, from a customer type, from a product. We're still selling lots of EstateMaster, Developer and Voyanta, that all contributes to the overall business.

I think so the point being to make sure I got it right here is the driver on growth going into 2019 is going to be larger enterprise deal on top of our runway.

Okay. That's fair.

And the last one, I think this might be for, Carl, I'm not sure, but beyond training with respect to ARGUS Cloud, what's sort of the go-to-market strategy for that product line, especially, in terms of your existing customer base?

The first thing is, again, we're trying to basically pull our customers into the cloud as opposed to push them into the cloud. We're looking at them clearly understanding the value proposition so that I'm extending the use of ARGUS in the cloud.

So we're very much focused on showing them the benefits that it's going to bring them in the cloud environment. The [indiscernible] that client bring an additional functionality on things that they've already invested in, so just leveraging the investment they've already made with us and extending the investments further with our cloud products.

We think it's a great approach to bring customers into the cloud and we're not causing a lot of concern with them by basically posting them on one platform and pushing it into another. We're allowing them to evolve into a brand-new platform at their pace and to gain it at a benefit from day one.

So we came up with the strategy right. We were trying to make sure that the sales teams really understand the benefits to the customers and how we show the benefits to the customers and not just drive a product into the market.

So we have a regular customer base, we have great market leadership, we want to enhance it by bringing them gradually into the cloud at the pace that it might sense for each customer.

Just want to clarify a comment you said earlier on - you mentioned that license revenue is down because there is a shift towards more subscription. So does that effectively mean you're selling more deals on a managed services basis with the revenues recognized ratably as opposed to upfront like license revenue?

Yes. I mean, if you look at the uptick on the AOD, a lot of these large deals like Allianz are going to come as subscription deals versus upfront deals, which puts pressure on the top line growth.

In any particular quarter, you're going to see a mix of valuation management growth and license growth. But license growth has been okay this year, so just in this quarter was down a little bit.

Is there any way to quantify the - either like the managed services bookings or the revenue that would've been recognized on an upfront basis if it was like-for-like with license revenue?

Sorry, say it again, Paul.

Is there any way to quantify that the bookings like managed services bookings, subscription bookings, or alternatively, any of the license revenue that may have been cannibalized?

Okay. So I've said on previous calls that as we transition more to overweight recurring revenue and the subscription deals, at some point, we'll have to represent bookings because the more we do that, like we did a shift, right, we know - you know this, Paul, probably, well, you know it really well, if we did a flip over on to only subscription pricing, it puts pressure on margins because you take the license revenue away from the quarter.

At that point, what I've said is I'd probably start giving visibility to our backlog.

Okay, but nothing yet?

Yes. We haven't done that, yet, no.

We're actually - you know what, the part of the reason that we haven't done it is there is this incredible blurring that's going on with customers, and we still - I took some examples. We're now starting to deal with deals - global deals with customers where they're taking products across the spectrum of our capability.

Valuation management in Europe, that's where our ARGUS Everywhere is part of that deal for Europe. And we're starting to get smart on profiting deals that are recurring, that are hybrid, and we want to bring our valuation management software to integrate with our enterprise over time.

So what we're anxious about is trying to line up these things as individual business performances when, in fact, we're trying to sell more complex global multiproduct enterprise solutions, right, there we go. If we get a huge - if we get the pick-up this year - sorry, 2019 on the cloud that we think we're going to get, we think that's going to naturally drive us to just move completely over to our recurring revenue.

And at that point, we will give visibility across that - all of the different backlogs that are available to us. So we're kind of stuck in the middle, I know exactly why you're asking for it, but we've elected not to provide that right now.

Okay. Well, listen, thanks.

We probably would finish by saying that, uncharacteristically, we decided to give some visibility to the market and that you should take that as a position of strength in our confidence and where we're going and how confident we are in our pipeline. And so thanks for the continuing support, and look forward to talking to all over the next few weeks.

Thank you.