Altus Group Limited

Thank you, Michael. Good afternoon, everyone, and welcome to Altus Group's second quarter results conference call and webcast for the quarter ended June 30, 2020.

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.

Joining us today are Bob Courteau, Chief Executive Officer; and Angelo Bartolini, Chief Financial Officer, who will start with some prepared remarks, and then we'll move right into the Q&A session. If we miss any questions, please contact me directly by e-mail.

Before we get started, please be advised that some of our statements and responses to questions on this call may contain forward-looking information. Forward-looking statements are based on management's current knowledge and expectations as of today, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements.

Also, please do remind us that Altus Group uses certain non-GAAP, non-IFRS measures as indicators of financial and operational performance. Forward-looking statements and an explanation of these measures are detailed in today's press release and in our related report for SEDAR.

And I'll now turn the call over to Angelo.

Thank you, Camilla, and thank you all for joining us on the call and webcast this afternoon. During one of the most challenging periods in our history, Altus Group put up a very strong second quarter, actually the best quarterly revenue and earnings performance in our history.

Revenues were up 9% to $155 million and adjusted EBITDA was up 16% to $35 million, driving a 22% improvement to adjusted EPS at $0.62. The strength in the quarter was driven by record revenues and earnings at property tax and sustained, strong double-digit growth in our overtime revenues and office analytics, demonstrating that our core services and analytics solutions are mission critical, and that our core business is solid and resilient.

One of the most recurring questions investors have about our company is how we might perform in a market downturn. I believe that our second quarter results have answered that; validating that we have a strong and stable revenue base across various economic cycles.

I see this as a legacy quarter; one, that we can be proud of and point to as an example of our resiliency. Turning to the individual segments.

Our Altus Analytics performance remains on track for our multiyear transition to a primarily overtime revenue model and shift to a SaaS Enterprise. Reflecting this shift, Altus Analysts revenues were up 2% to $51 million, and earnings were down 14% to $10 million.

But most notably overtime revenues, our key metric were up 18% to $43 million. As you'll hear from Bob today, we're making steady progress against our cloud to subscription strategy.

And as we look ahead, the acceleration of digital transformation in the CRE industry is a positive catalyst for our long-term strategy and our aspirational goals. As you're aware, at the start of 2020, we made the full shift to a subscription model for all our August software products from a hybrid subscription and perpetual sales model.

Simply put, more of our Q2 revenue last year had upfront perpetual license revenues, where the full price of the license was recognized upfront versus today, where the term value of the subscription license is recognized overtime. Although this change creates a stronger long-term economic model, the transition particularly impacts overall revenues in the first year of transition, but has a positive effect on overtime revenues.

Top line revenue was also impacted by some of the cloud related pressure on one-time revenue streams, such as software consulting and training services, which were down year-over-year on an organic basis. The pandemic also had some impact on software sales, particularly in the SMB space, and in prolonging sales cycles of some of our larger deals.

This was mainly a factor of client priorities and focus shifting during the pandemic and as they themselves got organized to work remotely. Despite these headwinds, our revenue growth and transition is proceeding as expected, and there is a strong and building story.

At this time, 83% of Altus Analytics revenue base is overtime revenue, a solid improvement from being in the mid-60s, just three years ago. And well on our way to reaching our goal of getting to 90% by the end of 2021.

Some key highlights for the quarter include the following; Strong software subscription revenues as a reflection of both current and past deals. Helping new subscription license sales, including a significant renewal with a strategic global service provider on improved and expanded terms that further entrenches AE as a standard valuation management solution and sets us up for sustained future growth.

Although our sales cycle for larger deals has somewhat lengthened as a result of the pandemic, we have visibility into a number of large strategic, enterprise deals over the coming periods. Our sales execution will be supported by our product roadmap that will further develop out our cloud capabilities and cloud transition, which Bob will touch on a little later.

Our maintenance revenues, supported by an industry leading 95% retention rate for Argus Enterprise. We expect our retention rates to hold in the mid-90s range as the demand and use of AE remains high.

Over time, this revenue will transition to subscription revenues as cloud adoption takes hold. Our appraisal management solutions remain strong and are an ever increasing demand, particularly in times like this.

We have signed a number of new deals in the past few quarters with both new clients and existing clients with new funds, particularly with pension funds. Our clients are very interested in the very unique aspects of our solutions, particularly on the analytics and performance capabilities that we provide, leveraging our data exchange platform.

And at our Canadian Data Solutions segment, we had good growth this quarter as the pandemic has highlighted the need for national data. We have done more deals with clients for national data in the past six months than last year and continue to make great progress, migrating our users to our new Altus data studio platform.

10 of our largest customers have already migrated to benefit from the improved data visualization and analytics capabilities. On the earnings front, our 19% margins in Q2 reflect the initial shift to subscription revenues and a higher level of expenses compared to last year, mostly related to software consulting, including the impact of 111.

So we saw some offsets come through in the pandemic dramatically reduced travel, and we had to cancel our in-person Argus Connect conference in April. Also worth pointing out, with our software training and education revenues down, we were still carrying the cost base.

If we look ahead, we feel comfortable with the outlook as the anticipated COVID-19 trends that we outlined on our last earnings call in May, remain unchanged. No doubt COVID-19 will continue to impact our business in the short and medium term, but the long-term opportunity remains solid, as you'll hear from Bob today.

We continue to be well positioned to deliver year-over-year annual revenue growth in 2020, as we carry on with our transition to cloud subscriptions. Our view is supported primarily by Altus Analytics over time revenue base of over 80%, healthy demand trends and our belief that our retention rates will be relatively stable as our solutions are considered mission critical amongst our clients.

Moving on to CRE consulting segment; another solid example of excellent execution during a period of disruption. Our global property tax big business continues to be on a multiyear roll with strength across all of our national markets.

Revenues were up 18% to $77 million, and earnings were up 19% to $34 million. The strength of this business goes beyond the single market and beyond and beyond being in a sweet spot of any given cycle.

Although our performance still exhibits some quarterly variability, this quarter be no exception. Our revenue is becoming more stable and balanced as the growth across all our national markets is helping to smooth out some of the peaks and valleys, especially when you look at it on an annualized basis.

We have been steadily growing and enhanced this business across a number of different internal KPIs. And the success this quarter reflects that.

For instance, our success rates remain strong, amongst the highest in the industry, translating to higher savings for our clients. Our market share by volume and value continues to grow and dominate in many jurisdictions we're in.

We are by far the leaders in Canada and the U.K., and have a significantly growing presence in the U.S. Our settlement volumes continue to improve in most jurisdictions; our pipeline continues to grow and is higher on a year-over-year basis, not just due to the volume of files on hand, but also reflection of improving pricing terms and values per appeal.

Our business development initiatives continue to be very impactful and contribute to the growing pipeline. In addition, rising property assessment values provide us with greater opportunities for savings, particularly in disruptive times like today.

And through our technology process and organizational improvements, we're increasing our efficiencies and supporting our strong margins on a go forward basis. In the quarter, the $15 million annuity billing revenue stream in the U.K.

was a noteworthy contributor. While strong and approximately $5 million higher over Q2 last year; It was nonetheless impacted by COVID-19 subsidy program that eliminated 2020 ratings for companies in the leisure, hospitality and retail sectors.

As a reminder, the annuity billings occurs only in Q2 starting the second year of a cycle, taking Q2 seasonally strong quarter for property tax. The U.K.

has recently announced that it will defer the next valuation cycle to 2023. That's allowing us to continue annuity billings into 2022 and setting this up for another strong year.

All to say these positive trends, the annuity stream, high success rates, improving settlement volumes, high market share and a growing pipeline all lead to a record quarter, despite having faced some pandemic related headwinds. Based on a strong first half of the year, the visibility we have into our pipeline and the current pace of settlements, which still appear to be moving along, we remain well positioned to deliver another record revenue year at property tax.

Our valuation and cost advisory have proven to be steady businesses in these unique times. As expected, we saw some softness in the transactional parts of these businesses, but our core portfolio valuation advisory and cost consulting services performed well.

And some elements showed growth. On balance, we're maintaining our revenues and navigating carefully around some of the pandemic related challenges in the industry by focusing on unique opportunities and sectors.

For example, the pandemic has added greater complexity to valuations and a number of our customers have ramped-up to monthly valuations. At cost, although we're still seeing growth in our core practice; we're also proactively positioning our offerings for infrastructure projects, and to assist with some anticipated distressed real-estate deals and workouts.

Turning to our financial position; we entered this period from a position of financial strength and our balance sheet remains healthy. As our free cash flows grow, we continue to pay down debt and return cash to shareholders through dividends and pursue investments that will drive shareholder value.

At the end of the quarter bank debt on our recently renewed credit facilities stood at $160 million, down from last quarter, representing a funded debt to EBITDA leverage ratio of 1.65x, well below our maximum limit of 4x. Our cash and cash equivalents was $74 million.

Our cash flow generation was strong in Q2, reflecting some seasonality and worth highlighting that it's consistent with pre-COVID historical levels. We remain on solid footing and continue to prudently manage the business so that we can remain in a strong position and take advantage of emerging opportunities.

During the quarter, we pursued a global restructuring program. The restructuring was planned as part of our strategy to continue to focus and invest in technology and information services platforms.

We recorded a total of $7.5 million in restructuring costs, of which $3.9 million related to office analytics and the balance to CRE consulting and corporate segments. These costs related primarily to employee severance, as this restructuring was companywide and impacted approximately 4% of our global workforce.

To give you some color at Altus analytics, the changes were relatively smaller in terms of headcount reductions, but higher dollar savings, as it impacted some senior positions as the program aim to realign our operating structure for the new operating model driven by our long-term strategy. This will allow us to rebalance some of our investments to target new emerging opportunities, and to make room for new roles in our most strategic areas to strengthen the capabilities needed in support of our long-term strategy.

At CRE consulting and within our corporate group, the changes were more related to headcount reductions primarily in Canada, the UK and in Australia, including some accelerated retirements and non revenue producing roles. We believe that some of the changes will better position us for profitable growth in the new operating environment, post COVID-19.

While there will be some cost savings in the near-term, I remind you to remain in growth mode. And therefore, we do not expect any material impacts to our operating margins outside of previously planned levels.

And again, at Altus analytics, the restructuring is in line with our long-term plan and the target ranges that we previously presented for adjusted EBITDA margins for 2020 and beyond. With that, I'll now turn it over to Bob.

Thanks, Angelo and good afternoon, everyone. Look, I'm really proud of our team's performance.

Against a challenging external backdrop, we delivered outstanding, consolidated top line and earnings growth, strong free cash flow, and improved our consolidated adjusted EBITDA margins. All while keeping our foot on the pedal to progress against our long-term strategy.

We've been proactive and innovative in pivoting our offerings for emerging opportunities, and made an incredible effort to support our clients, while being under duress ourselves. It was an extremely productive quarter that supports our optimistic outlook for the remainder of the year, and frankly, for years to come.

Without a doubt, 2020 has been one of the most challenging and unpredictable years in our industry, and certainly in my career. We recognize the hardships experienced in our communities and in our industry.

And from that perspective, we consider ourselves to be in a very good position to be weathering this storm and to see opportunity on the road ahead, we are truly fortunate. It's not to say that we didn't face any headwinds.

And this fortune comes from -- it's truly attributed to solid execution. We do have a good team.

It reflects our efforts in business transformation. It underscores the high quality and resilience of our operating model, including our multiyear effort to enhance revenues to higher economic value recurring contracts, and validates the strategic importance of our solution set in the industry.

The pandemic has validated that Altus Group has a high degree of revenue stability during CRE market cyclicality. And that many parts of our business are actually counter cyclical.

As we've been saying, this is an exciting time for all this group well on our way in transitioning our office analytics business to high growth, overtime revenue model with a very attractive financial profile. And it's very well time with an exciting run at property tax.

Our long-term opportunity is attractive as ever. At Altus Analytics, there are significant and permanent changes happening in our industry.

The expectation for insight and transparency has been heightened substantially. Digital transformation across our industry is accelerating by necessity for many companies that's absolutely been accelerated by the pandemic.

We've seen this before, where an escalation and increase momentum of significant transformations in industries are rooted during periods of crisis or economic upheaval. And in this case, we have both.

This is a case for better tools, data, analytics and the applications that support them. This is a positive catalyst for all Altus Analytics business and our strategy to serve the CRE market with an end to end vertical market platform.

The foundational building blocks are in place, and our transition of Argus Enterprise to the cloud continues to progress in line with our expectations. At the end of the quarter, 8% of our total Argus Enterprise user base was contracted on the Argus Cloud Platform compared to 6% at the end of Q1.

The bulk of the cloud volume continues to be SMB driven, where there's a more straightforward transaction. And we're starting now to see bigger deals in the mix.

As we've been seeing, the larger companies will naturally take longer to convert, as this is a strategic consideration for them. But we are happy with how the pipeline is building.

By our very own experience during the quarter, we completed the migration of our in house Canadian valuation group users to Argus Enterprise on the cloud. And we instantly saw a material benefit in the ability to share models internally, resulting in a more collaborative approach to undertaking appraisal assignments.

With several clients moving from quarterly to monthly evaluations during this period of valuation uncertainty, the efficiency gains are important as a team was doing almost triple the number of appraisals in Q2 versus Q1. Plus, we have a number of new products and features in our cloud product roadmap over the next several months that will make it more attractive for a number of our larger clients.

In particular, Argus Cloud will include the new platform reporting, Yardi integration, API enhancements and full integration with our Voyanta and Taliance products. We believe that as the number of the planned enhancements and new features address current client challenges, and will fortify our platform solution to help drive accelerated adoption later this year, and obviously in 2021.

Overall, we're seeing continued momentum and making good progress adding Argus Cloud customers, as we're now approaching 800 Argus Cloud customers. This includes both new customers, as well as those who have migrated from the legacy on premise version.

And to build on what Angelo shared about the quarter, we've sustained momentum with our overtime revenue growth, which is benefiting from the higher economic value of the new subscription contracts. Our bookings volumes are picking up from the temporary slowdown experienced in the first part of the quarter as people have adjusted to the new normal.

Our software sales pipeline continues to be healthy. As just discussed, our cloud transition metrics are on plan and appraisal management solutions continue to be in high demand, as evidenced by another strong quarter.

And we have a very strong pipeline of new opportunities. And finally, our Altus data performed very well in the quarter.

And we're excited for the opportunity for the Altus Data Studio. So in summary, we're in great shape, and feel really good about where we're headed.

The market fundamentals remain exceptionally attractive, and we are well positioned for the opportunity ahead, especially with our cloud strategy which allows us to improve the economic value of our contracts while providing significant value to our customers and the industry. Like a property tax, we remain in growth mode, and have plenty of runways ahead of us as our market penetration is still modest relative to the opportunity.

As you heard From Angelo, we're also making solid progress improving the economic model due entire in great part by tech enabling the business. The strength of the model is dependent on growing market share, factoring in both higher volume and higher value of appeals.

Our growing scale significantly enhances our internal data sets, which combined with our deep expertise contributes to the strong success rates that we're able to achieve for clients. It also allows us to maximize the value of the appeals that we process, which given our high contingency model has mutually beneficial outcomes for our clients, but also for the company.

We're becoming less dependent on single cycle contributions from one geography and have achieved more balanced performance across the board, plus combined with ongoing digital transformation initiatives. We're driving towards improved revenue predictability, revenue growth and margin expansion.

As discussed in our last call in May, this business is counter cyclical in spite of some short term impacts on the pandemic, we had a tremendous quarter, and we're still poised for a record revenue year. Looking out beyond is here at the market disruption brought on by COVID-19 presents us with some unique opportunity that we're positioning our business for.

It's been our experience that periods of market disruption tend to lead to valuation volatility, which ultimately provides us with greater opportunity to maximize savings for customers. This sets up a pretty compelling outlook over the long term and a few points in support of that.

The 2020 is slowing the case settlement activities has allowed us to focus on growing our pipeline for future years. In addition, the spillover effect of some of the settlements that will get deferred will benefit us next year and beyond.

And a spillover into 2021 is likely to be higher than we initially anticipated. And we will also see a spillover into 2022 as well.

Specifically in Ontario and the U.K., we're likely to see an acceleration of case settlements next year. That will give us additional momentum.

And importantly, the U.K. is extension of the 2017 cycle by an additional two years is a positive for clients, and will allow us to continue with annuity billings through 2022.

It also provides us with more time to process our existing pipeline and add two more 2017 list files. Our potential for higher rap out wins in the next cycle strengthens.

Join on our experience in past market disruptions, that has always been the case. For example, the voluntary and property valuations could lead to higher savings for clients.

We're already all over this in the U.S. earlier this year; the team signed a new client in the retail sector and already has achieved them savings of over a $1 million by proactively addressing the impact of COVID-19 on the retail space.

There are many, many more examples like this one. And we're pursuing COVID related adjustments for clients in all markets.

And also using that to drive our market share in these industries. In the future, we can also benefit from some unique onetime COVID related appeals.

For example, in the U.K., we're leading a class action on behalf of our clients in response to the devastating effects of COVID-19 on their business, resulting in the service of over 30,000 appeals. No one has responded on that scale.

Given the strength of our key performance indicators as Angelo covered off, we're set up for growth. And of course, we believe that we're better positioned than our competitors, and that there will be opportunities to add talent to our team, build loyalty with clients, and gain more market share.

And we will obviously consider attractive tuck-ins as we move ahead. But we recognize that this is a very difficult time for industry with shifting complexity, more pronounced challenges in certain asset classes in sectors, and overall with client viability, which could introduce some risk of collections.

But as a counter cyclical business, we have a great growth runway ahead and a phenomenal backdrop, a macro backdrop for property tax. As I start to wrap-up, I want to congratulate and thank our employees for an amazing quarter.

We recognize the challenges, the hard work, the extra challenging times and we thank you for going above and beyond, not just for all of this, but for our customers as well. Our industry is one that still thrives on relationships, and our customers have been leaning on us like never before.

And our team is going above and beyond. We're here to support the industry, to manage through whatever challenges may lie ahead in this ever changing environment.

All of our solution sets are aligned to help our customers; customers maximize the value of their CRE assets. I'm confident that the increased level of thought leadership and engagement that we're having with our customers will serve us well over the long-term, with strengthening client loyalty and retention across every one of our business.

The world has changed in a last several months and we're committed, as ever, to do right by our employees, the industry and the communities that we live in. As we carefully plan ahead for our inevitable return to an office setting, we continue to prioritize proactive risk management and taking good care of our people, customers and communities.

In addition to the pandemic, recent months have also seen social unrest, particularly in the U.S. that has brought -- this has brought heightened focus to racial inequality and injustice in our societies.

For me personally, it has reinforced the importance of diversity and inclusion across our company and in our society. While I believe we have a great foundation in place at Altus, there's always room for improvement and we look forward to rolling out more initiatives this year.

So in closing, I wanted to leave you with the following, number one, our results from Q2 underscore the high quality and resilience of our operating model and validate the strategic importance of our mission critical solution set in the industry. Number two, against the backdrop of uncertainty, our end to end CRE offerings drive better decision making for our clients, helping improve the visibility and flow of information through the critical business process to maximize the value of their CRE assets investments.

Our clients are facing both unprecedented challenges, but also opportunities in the current environment. Strengthening the long-term demand for cloud based solutions, data and analytics and professional services will be a factor in supporting our clients.

And number three, hey, we're in growth mode. The long-term fundamentals of our business and the market opportunity ahead of us are as great now as ever and we are very favorably positioned.

So with that, operator, if you can open up the line for questions.

Good evening, guys. Wanted to just drill in a little bit on the 8% cloud penetration rate for the quarter.

Bob, is that still primarily driven by small and medium sized customers? And especially given the pandemic, when do you think you might get some of your top five clients to make the switch?

Like where's their head out right now in terms of cloud?

Yes, look, I think the solutions that we're really seeing here over the next three or four months are the ones that are really going to cause some of this pipeline to start moving, right. And what's cool about it is that, the way we developed our multi-year roadmap, we're on track with this transition started with the SMB users.

And as we create this new infrastructure, it's a great way to enter into a cloud model. So we felt pretty good.

We actually closed a large transaction in the quarter, with one of the -- one of our biggest customers. And we had big, big, long discussions on cloud.

But in the end we deferred. And the reason for that is that we felt that we wanted to get it closed in the quarter.

It contributes to the overtime revenues and we want to actually build a strategy with this customer that is going to be more broad. So there are two things that there are two things in slide here, one or three.

One is getting our models intact in our business, our shift to subscription models, well intact; get the end with that get the products out in the market for the enterprise. Number two; we also have an objective to increase our overtime revenues.

And this deal that we did in the close in the quarter is going to really contribute to that. And then number three, all we want to do is make sure that we partner with some of the big service providers out there to go to market through API's, through partners in the market, and it just takes time.

It's a different way of looking at the market and the industry. But we've always planned for that.

And so we feel like we're on track relative to the metrics that we track Insider Company. And the pipeline was really good in the quarter on larger deals, so that feels pretty good as well.

Okay. One for Angelo.

I thought on the Q1 call you had mentioned expectations for flat margins and Altus Analytics in 2020. Did you to turn out the way you thought is year-to-date we're down over 300 basis points.

So just wondering if your view change or so we should expect some improvement in the back half of the year?

I think there's a bit of improvement that you can expect although, we sort of the ranges that we provided back at our Investor Day in December, our part is the range and part of what we did in June that was part of our plan for 2020. And so it's that range still holds.

And so I think we're going to be within that -- well within that range.

Sorry, about that, I thought I was on mute, I apologize. Good evening, everybody.

Just on the tax business. The quarter came in quite strong.

And at the time of Q1, you talked about some of these delayed U.K. settlements with it, which it sounds like some of them did come to fruition in the quarter.

But was there something in the quarter that was stronger or maybe, conversely not as weak as you might have expected?

Steven, I think on the last call, we were still in the early throes of the whole pandemic situation. And we were seen in certain jurisdictions, where they were some delays, they weren't around as much hard to follow through on settling cases.

As it turned out in many jurisdictions where that was happening, turned out that towards the end of the quarter, it actually improved significantly. And so, that was, I don't know if you'd call it positive surprise, but it was a bit of an unknown for us early on in the quarter.

Yes, hey, Steve, one of the things that we got on pretty quickly, when governments were trying to help businesses we across virtually all of our tax practices, we did a huge amount of lobbying with the government to say this is an easy, why would you hold back on obvious tax settlements? Right.

And that ended up being a fairly effective strategy in many of those markets. But we also enjoy, what I loved about the quarter is that there was contributions from a broad sector wasn't like one phenomenon, which is a reflection of how tax is going to evolve as we go forward.

We think we're getting critical mass in this business that is going to really allow us to start getting the benefits of more consistent high quality revenue. So it was a great quarter.

Yes, okay, that's good color. And then when you think about your property tax pipeline.

As you mentioned things sort of unclogged from where they were at the beginning of the quarter. I assume you had momentum building through the quarter.

So when you look at your pipeline from where you are today, what's your visibility? And would you say that it's improved?

Your outlook has improved from where you were at Q1. I guess it's fair to say probably has, but would you expect that it's still going to be a record year for 2020 tax?

Yes, especially given, what we booked today for sure, where we are being a bit careful in terms of even our messaging and signaling, but we're very confident we have great visibility. We're continuing to do business development and add new clients and new appeal to our pipeline.

And visibility is good. And there is actually given what's going on in the market right now.

There's no certain jurisdictions has new opportunities, there's new opportunities for appeals that we hadn't even envisioned before. So we are adding to the pipeline.

It's -- it is growing. And which is the reason we're feeling confident for the balance of this year, feeling confident for 2021.

And with what I mentioned in the prepared remarks with what Bob mentioned as well, with the U.K. stretching out this valuation cycle, allowing us another year of annuities in 2022.

It just stretches; it stretches the opportunity in tax for many years to come.

And the wildcard to the short-term question is we had a really, really strong settlement in Q2 that obviously could have a modifier in Q3, right? We're not talking down Q3.

I'm not saying Q3 is going to bad, it is going to be bad. But it was phenomenal across the board.

And so we're now in a place here where if you look at tax on an annualized basis, we have really, really strong visibility through, a two or three year cycle now. It's pretty it's really positive and we think we can run the competition grow market share, and we're ahead on our technology transformation.

So, this is a high value business.

Yes, that's great. And maybe I just wanted to follow-on something you just sort of about the really strong settlement you had in Q2, and given that the annuity cycles tend to be Q2 seasonally strong.

Are you able to quantify like where that came in, relative to what your expectations would have been?

It was just -- it was better in terms of the overall settlement, and it was one of those quarters where we had a broad contribution, right? So it's just a really good great quarter particularly given the backdrop of what's going on in the world, right?

I think, look at I mean just a little anecdote about that I mentioned get organized in the pandemic, at work from home, to do 30,000 appeals in the U.K. on a class action basis, talks to technology, and the kind of influence we're having on the industry.

We also had and probably, I mean, Western Canada is under a huge amount of pressure. We had another strong Alberta quarter, it was like -- it was amazing.

And so with that, what happens to the point I made earlier in the impact on values, given the implications of rent or revenue, creates incredible opportunities. And you got a government that is trying to help these businesses on one side and at the other side, hard to argue that structurally the valuations that they had previously are defendable, right?

And so all those elements are in place that, this is like our tax guys are feeling pretty good about what's a next two years are going to look like, they got lots to work with. And it's really good news for our customers.

In a world where it's really hard for our customers like they were looking for -- they're looking for help. And this is one, as Angelo said, as a counter cyclical business.

We're going to help them a lot.

Okay. Good evening, everyone.

I just have a couple of follow up questions, if I may. Bob on Altus Analytics, you mentioned the customer cutting up to the cloud.

But you seem to say that they had an expanded contract or expanded agreement. But didn't put in a full kind of scope that you expected and you're kind of holding off for some further future plans.

Can you walk us through what that means a little bit? Are they expanding geographically and where you extend products?

So what happened was we signed a number of multiyear subscription agreements with these clients, like three or five years ago. One came up in the quarter.

And, as part of the negotiation we didn't want to let the renewal date pass. And so we got into classic software negotiation where we didn't want to let the economic value get interrupted by introducing some of the cloud complexity that would have come with things like data rights, transition rights and that.

So we ended up negotiating an amazing contract, absent cloud and we have an opportunity to go back and get it. So it wasn't a comment on the viability of the cloud for this client.

It was actually the way the contract it comes to be. We elected to take a more traditional contract now with an option on cloud and come back to it.

And from an economic value that was a better decision for us. So it was that simple.

It's just a pure negotiation.

Okay. So do you have to wait till the next renewal period to come back to cloud?

Or can you accelerate that?

We signed a five year renewal and we're really happy with. And we will be back shortly.

Got it. And so just in terms of big enterprises in general, if there was some kind of pause or slowdown due to COVID.

And now we're looking now a little bit more comfortable with the kind of COVID situation to some extent. What is their thinking around spending on these types of transitions?

Were they just -- were they kind of slowing down because they need to sort the internal issues first, or they risk shuffling budgets or tech stack priorities? What are their thoughts in terms of priorities now in?

I think that our pipeline went up in the quarter. So there's more opportunities than not.

Obviously, like for all companies' decision making is a little bit trickier. But again, I'll say it again; we were not dependent on these large transactions for our multiyear transition.

The key is to keep the SMB going, we're actually doing better in advisory in Altus Data through the quarter, our pipeline, and those two businesses have been phenomenal. And they're a modifier for any slowdown in the SMB part of Argus.

So we feel really positive about our position now against the metrics.

Okay, thank you. And then Angelo just on the UK property tax annuity billings.

Am I to understand this correctly that the UK extended for another year? Can you announce last quarter that kind of 2021 and now they're spending the 2022?

Is that the right interpretation?

Yes. That's correct.

We had two extensions, if you will, in the last -- within the last quarter. So it just has to do with them being able to prepare.

And again the pandemic is caused; you can imagine jurisdictions matter work that they have to deal with a number of appeals, timelines and they have to go through an assessment before they can reissue new values. And so they just needed more time themselves.

And so they've announced that they are going to push out another year. They haven't actually passed the legislation.

But it's pretty clear that's what they're doing.

And Deepak, it puts an exclamation mark on the government's ability to actually strike evaluation, right. Because in this world that's a very difficult thing to do at scale for all those establishments.

And that's another example of our ability to create good outcomes for our customers because of those shifting values.

Okay. So two follow up to that.

So before all this happened, you guys are expecting annuity to peak this year. Does this push the annuity peak out of 2022 and then you keep growing until then on the annuities at least?

Yes, correct.

And we have -- and by then we'll have further gone on our digital transformation. We'll have higher market share.

We'll have bought some companies. We will have more data.

We shall win.

Yes, looking forward to it. And I just the last one, if I can put this in.

You mentioned that the class action around the taxes in the UK. Are there any externalities we should be thinking about associated with this?

Like does this suck up some future tax claims? Or is this completely additive to the existing kind of momentum you got in that business?

No, this is all additive impact. It's all incremental to -- it's just one of the few opportunities that presented itself as a result of this whole pandemic environment.

And so think about it as the best way to think about it, Deepak is class action suits over there are different from what how they're seeing in the U.S. as an example.

So think of this as a massive lobbying effort. Like we work with a couple of industry associations to put this together.

And the outcome could be a one time benefit for our clients, or it could cause an opportunity in terms of how they strike values. And so this is us getting mobilized against all of the elements of our operation to really be influential in that, in all the tax markets that we serve.

Right. So you have to have the data and technology and customers.

I mean we're over 80,000 establishments now in the UK, right? So --

Yes and just the dynamic you can push in through to the U.S. market?

It's a little bit different because what's cool about the UK, it's a single market throughout the UK. They don't have regional or provincial breakdowns like they have in Canada or even in some cases, municipal.

It's one big honk and valuation market. So it's easier to get assembled against that.

We probably, fair to say that, Alex Probyn and the team over there has -- Canada is pretty good too, but have incredible data mining. So that's the other reason that they're able to do it.

Hey there. Good afternoon.

Just on the Altus Analytics side, you talked in the past about how destruction can cause increased usage and drive revenue. Just wondering kind of your experience in the quarter whether you have any anecdotes or KPIs on usage of the system or needing more licenses or more frequent appraisals.

Yes, when you get into the enterprise conversation, more and more, we would say that the large global real estate companies and the large service providers are driving digital transformations. They’re thinking about how to improve work flow.

We fully expect as we go into 2020 and they sort out their projects that Argus will be a foundational technology around that and Argus Cloud particularly where they can use it as a source of data collection. And these are the kind of tools that are coming out over the next four months things like collaboration, APIs and that.

And so anecdotally when I talk about the growing pipeline, we're having those conversations that are about how we have to implement these solutions against their digital transformation. And the story I told about how we used Argus ourselves in the pandemic is not lost on the industry in the market.

And so most companies are now thinking about how they can get their data into cloud infrastructure. And we're having great conversations.

And then secondly, if we think one of the things that's going to happen, some of it driven by us is, we're in a period of time where we're integrating our businesses. And so if in our appraisal management business, which had a great quarter growth and margin, if we actually start using Argus Cloud to contribute to data exchange, to contribute to data bridge that will create traction with the biggest customers in the year, in the world, and the big software providers to want to serve those clients.

And so that's a big part of our strategy. And we had some pretty interesting breakthroughs in the quarter about how that's going to work.

And then finally, with Voyanta, we're working with a couple of large clients to be their data aggregator, their data collection platform for those customers, which then again, ties in Argus Cloud. All of these are great opportunities.

The last thing I mentioned as well as just the demand we're having from many of our clients to help them out running Argus models in our RVA practice where they don't have necessarily in-house expertise yet. And so we're running a lot of the analytics on their behalf.

That's great, very helpful. Just secondly for me before pass the line, M&A kind of earlier in the year I think your thought process was being more kind of opportunistic patients seeing things kind of played out through the pandemic.

Just thought I'd take your pulse on kind of your M&A appetite now as the year's progress?

We get a lot more calls post pandemics that for sure. Like I -- I think the way we're looking at it is probably unlikely I shall say it this way.

We got to get to a point where we got to be able to integrate these acquisition and it's one of the barriers, one of the challenges of the pandemic or COVID-19. Hard to imagine that you can do integration right now, right?

And so we do have a couple of interesting opportunities, we're probably going to sign some partnership agreements, and use the partnership agreement as a way of doing combination of due diligence and dating and maybe even engagement to get married, right? So that's the way we think we're going to work our way through it, at least in the short-term.

Thanks very much. Good afternoon.

Just a couple of follow-up questions on property tax; obviously, a very strong quarter. I'm just trying to get the sense if it was better than your expectations prior to COVID, when you net out all the puts and takes.

Because it seems like you've benefited from some degree of cautious settlements, but then also there are some deferrals and then the suspension of the 2020 ratings in the UK. So when you look at it prior to COVID was it better than expected in line?

Just help with that.

I think in the long term 100% way better than we expected from a counter cyclical perspective. We didn't -- part of the reason that we have some trepidation.

We didn't -- I mean, trying to run, we lost. I don't -- and we said how much we lost in quarter?

I think you gave. Yes, we lost a huge amount of revenue in the UK in the quarter, which will be replaced next year, it was a one-time rebate, and then ran that in the UK and then had broad success where we were able to gauge.

So yes, it was way better than we expected in the quarter and frankly 2022 valuation deferral for the UK was a positive on top of that. So that's happy, happy, and happy.

For Angelo, could you quantify huge.

Quantify, I'm sorry?

On Bob's comment about, you lost a huge amount of revenue in the quarter.

Well, we didn't -- we talked about it. We also -- I believe, if I recall, we talked about in the last quarter, but we didn't actually put a number in.

So it relates to three industry segments: hospitality, retail and leisure. And so for those clients, they had a tax holiday for 2020.

And obviously, we can't bill them for something that they don't know. And it was just a one year thing.

So it comes back next year. But we haven't quantified it.

We can put that number out. I mean -- it would have been a segment of last year's numbers.

And on top of the $15 million that we would have booked this year. So but I can't give you a number since we haven't published one.

Okay, and then look specifically in regards to the U.K. annuity billing is up 50% year-over-year, significant increase.

What's the fundamental driver of that and are those drivers sustainable?

Yes, I mean, again, it's a little bit like the subscription model, right? So you build it constantly, every year, you've got the billings from the year before and then you're putting, you've got what you did in a new lease from the prior year.

And then in the last year, the new case settlements just build on top of that. So it's increasing function.

And now there is -- we were a little bit careful as you get longer in a cycle, you may lose a few of those clients because some may go bankrupt, just some fall off the table. It's not 100% that you get to capture again in the following year, but it is a very high percentage.

Yes, thanks. I hope you guys are doing well.

Starting from COVID with respect to, a; what do you figure the current major gating factors are to converting your large customers? Like what do they want to see?

Is it just time?

Yes, I think we've always said that there's just -- look, when you put in a new application and you think about it not as a departmental app. I mean we're selling Argus Enterprise to enterprise; we still have our normal volume.

People aren't taking licenses. But what we're talking about here is a full scale transition.

So I've said it in past meetings the reason that we didn't have over a significant amount of enterprise expectations in the first year is you got the selling cycle, you got the cycle of validations. So if you're putting a new cloud application in to the biggest companies in the world, there is the security responsibility around that, you have to get budgets organized.

And the functionality that I've talked about a couple of times on the call is the functionality people need to operate these solutions on a global basis different from the SMB customer.

Okay, and then no doubt you're in discussions will all of your customers. What are that everyone saying with respect to whether they are seeing any permanent structural changes in commercial real estate, whether it's work from home, shift to e-commerce, and how does that sort of change, how you think about to the product and services you roll out, as we look kind of beyond this?

The bell curve on that is huge, right? If you're in retail and that's a predominant part of your business, this is an extremely challenging time and both in terms of bankruptcies, collection and the like and frankly the future of retail.

So already see you're seeing in those kind of markets that are the hardest hit, serious repositioning of those assets. And like I saw that -- I can't remember who was, one of the big mall owners, it had close, it just did a deal with Amazon to use one of their big box stores as a distribution center in multiple locations both Suburban and Downtown.

So, you're already seeing people scramble right and find different ways to reposition their assets. I think the good news is and I've said this all along, for the most part, real estate has become an institutional game, pension funds; insurance, banks, private equity.

And they're repositioning rather than retrenching is probably a consistent theme. What could be interesting is the workouts that come out of that repositioning; the valuation where.

I actually think the shift is going to move to and managed funds were versus REITs, which have been more specialty, monoline type of structures; and you're going to see the big large firms, including the pension funds probably even looking at buying some of those REITs and turning them into managed asset, either directly for the pension fund or indirectly as a asset management solution. We're seeing that -- we're seeing all sorts of activity all over the place.

That's a good trend for us because we value those funds. And then all of our competitors for Argus, almost everyone are a single asset competitor.

And when we think about investment management, we think about the complexity of managing portfolios. And we're going to reinforce that as part of our roadmap as we go forward.

Because like if you look at RealPage an example, they're kind of a multifamily, they are a multifamily company is the least complex asset class. And although they think they're going to compete against us in investment management, it aren't going to happen because the complexity of running these institutional portfolios with Argus, collecting data and things like data exchange, doing the things that we do with data bridge on an integrated basis is really complex stuff.

And that plays to our strengths. And that's going to show up in our roadmaps.

Yes, look, it was a great quarter. We're really happy with where we're positioned.

But this isn’t causing us to relax; we are fired up about the opportunities in front of us. We think that this puts a lot of pain in funding and viability of some of the smaller companies that might have been changed in us.

We think we have a better mode today in both tax and Altus Analytics and with some of our services business than we did three or four months ago. We've always been saying that we're proud to prove it.

So thanks. Thanks for the interest and thanks for your support.