Participants, please stand by. Your conference is about to begin. Good afternoon, ladies and gentlemen. Welcome to Altus Group's fourth quarter and full year 2019 financial results conference call. During the presentation, all participants will be in listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Camilla Bartosiewicz. Please go ahead.
Thank you, Michael. Good afternoon, everyone, and welcome to Altus Group's fourth quarter and year-end results conference call and webcast for the quarter and year ended December 31st, 2019. For reference, our earnings results news release was issued after market close this afternoon. It's 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 is Bob Courteau, Chief Executive Officer, and Angelo Bartolini, Chief Financial Officer. We're actually doing this call from our ARGUS office in Houston. We're also joined by some colleagues, Steve Bezner, Gordon Richardson, and Eric Li. We'll start today with some prepared remarks, and then we'll move right into the Q&A session. Of course, if we miss anyone, please contact me directly.
Before we get started, please be advised that some of our statements and responses to questions on this call may contain forward-looking information. I would urge you to please review the company's MD&A on our website for more information about the risks and uncertainties of forward-looking information. Please be reminded that Altus Group uses certain non-GAAP, non-IFRS measures as indicators of financial and operational performance. These are not defined performance measures under IFRS, but we do believe that they are useful supplemental measures that may assist investors in assessing an investment in our shares and provide more insight into our performance. I'll now turn it over to our CFO, Angelo, who will start with a review of our financial performance.
Thank you, Camilla. Thank you all for joining us on the call and webcast this afternoon. I'll start by framing the year and then dive right into relevant drivers. Overall, we characterize 2019 as a pivotal year for Altus Group. The significant process throughout the year helped us reach a critical inflection point in our multi-year strategy. Financially, we had strong consolidated results and growth in key financial metrics with double-digit top line and earnings growth in our consolidated results. Our annual consolidated revenue rose 11% to CAD 567 million, driven by record 21% growth at Property Tax. Altus Analytics also delivered robust 10% growth during a key transition year. The strong revenue performance led to a 24% increase in adjusted EBITDA to CAD 88.1 million, driving a significant improvement to our adjusted EPS to CAD 1.47. Our consolidated margins also improved notably to 15.5%.
The strong financial results from 2019 set a strong foundation and demonstrates our ability to leverage past investments in innovation and acquisitions in generating superior returns. Operationally, we achieved a number of very significant milestones critical to our long-term strategy. A key milestone from 2019 was bringing ARGUS Enterprise on the cloud to market. As many of you are aware, this has opened up attractive long-term growth opportunities for our Altus Analytics business. At the same time, we transitioned our ARGUS software pricing model to a subscription-based model that benefits clients while building a predictable and strong revenue base for Altus, helping support the long-term aspirational targets we outlined for you during the year. The transition to cloud is proceeding nicely. Bob will provide you with some color on this a little later.
Beginning in Q1, we will begin to provide you with new metrics that we had outlined at our investor day in December, specifically metrics covering cloud adoption rates, retention rates, overtime revenue, and geographic revenue mix. For Altus Analytics, we finished the year on target and within the financial guidance we previously provided. Full-year revenues increased 10% to CAD 202 million. Recurring revenues grew 18%, while margins came in at 18.2%. With the move to full subscription pricing beginning in 2020, we had expected a greater mix of perpetual license sales to subscription sales. The variance on mix affected our revenues and margins for the fourth quarter. Having said that, we are very happy with more subscription sales as they have a higher economic value over the longer term.
Another factor impacting our revenue comparability were two very significant subscription on-premise deals, one in Q2 and one in Q4, that as a result of IFRS 15 revenue treatment, had sizable upfront point-in-time revenue recognition. On the earnings front, our margins were impacted over the course of the year by the factors I just mentioned. One, the transition to subscription, and two, the investment we made to develop and bring the AE cloud platform to market. We expect going forward that our spend will only grow in proportion to revenue growth. As a result of both factors, margins are expected to remain consistent in 2020 and begin to see a rebound in 2021, as we highlighted also at our investor day. Overall, we saw a lot of positive trends in 2019 from Altus Analytics.
Sustained strength in ARGUS Enterprise add-on sales, both from customers adding more seats and adding more functionality. This made up approximately 70% of AE software license sales. Robust growth in our customer base, with particularly good contribution from the SMB space, and healthy volume of new customers outside North America. A strong start to our AE cloud transition. More on that from Bob shortly. Our appraisal management business. On our property tax business had a phenomenal record year with a very strong finish in Q4. Strong Q4 revenue growth of 39% and a material increase in earnings contributed to full-year growth revenue of 21% to CAD 213 million and earnings growth of 74% to CAD 63 million. Annual revenue and earnings growth was driven by the U.K., along with solid growth in the U.S. and Canada.
In the U.K., we saw an acceleration of settlements from the 2017 list, especially in the second half of the year. Annuity billings significantly contributed to revenues and is expected to be even larger in Q2 2020. As a reminder, we recorded annuity billings of CAD 9.9 million and CAD 4.7 million in Q2 2019 and Q2 2018, respectively. In the U.S., we had growth in our core markets and a good buildup of pipeline work in emerging regions where we have previously made organic investments. In Canada, you'll recall the first half had strong performance in Western Canada, and then in the second half, Ontario settlements started to rebound. This demonstrates the strength of our national model in Canada, where the multiple cycles provide for more balanced performance.
Overall, the strength of this business goes beyond any specific jurisdiction or tax cycle, but rather is rooted in the strength of our competitive advantages that have allowed us to deliver steady annual growth for many years. With cycle factors aside, when we look at our internal KPIs, we see really positive trends in increased values of contingency contracts, strong success rates, pipeline volume driven by improved business development, value of appeals maximized driven by the strength of our data, and overall operational productivity, which has been improving as we have added more technology and automation to our delivery model. There is no doubt all contributed to strong 29.5% margins we posted for the year. Moving on now to our valuation and cost advisory businesses. Performance was consistent both for the full year and in the fourth quarter, driven by strength in our Canadian cost division.
These businesses enjoy strong market leadership, hence why growth has been modest. We are building upon the organic strengths of these businesses and optimizing with technology initiatives. Year after year, they prove to be solid operators and drive strong client value, as exemplified by their superior client and project retention. At Geomatics, as you are aware, subsequent to quarter end, we announced that we'll be spinning off our Geomatics business with WSP's Geomatics operations. I'll just spend a minute on that. Fundamentally, we came to conclude that this joint venture structure would generate the best possible value for all stakeholders and most favorably position Geomatics for long-term success in its core market with a strong partner. Combining our collective technical expertise and breadth of our people creates Canada's largest pure-play Geomatics firm that will provide them with numerous competitive advantages.
In addition to revenue synergies, this will also offer them more services to clients with a national scale to take on the largest and most complex projects while remaining agile enough to be competitive at the local level for smaller projects. Overall, there is a strong cultural fit with mutual respect on both sides. For Altus Group, we always strive to maximize value of all our business assets. This checked the box. While Geomatics was once an important contributor, over the years, we've pivoted our strategy to become more focused on key CRE offerings. It inevitably became non-core. We believe that this solution provides the best option in maximizing value. With respect to the transaction, we're on target to close in the second quarter.
We expect to have an equal ownership split with WSP, just under 50%, and we will account for this under the equity method. In Q1 and for part of Q2, the Geomatics segment will be reported as a discontinued operation and removed from our consolidated results. Finally, our corporate division, corporate cost trended higher at CAD 28 million, representing 5% as a percentage of revenues, compared to 4.5% in 2018. This is consistent with our previous comments that corporate costs would increase as we continue to scale our business. I'll wrap up by reiterating that our balance sheet and debt ratios are in great shape, providing us with solid financial flexibility to continue in investing in our future growth. With that now, I will turn it over to Bob.
Angelo, thanks so much. Good afternoon, everyone. As you just heard, we had a strong finish to the year, and we fully expect that that momentum to carry forward into 2020. This could not have been accomplished if not for the incredible talent on our team. Honestly, we have the best team in the industry. As I reflect on the achievements from 2019, looking beyond our financial results, it was a remarkably productive year across the entire organization. At Altus Analytics, we brought ARGUS Enterprise on the cloud to market and rapidly shifted our organizational focus from a building phase to sales execution with good success. Our geographic expansion investments continue to bear fruit, and we made good inroads into the markets we invested in. We welcome a lot of new customers and continue to broaden the use of our Altus Analytics solutions with existing clients.
At our property tax business, we continue to gain market share and made notable advancements in improving our economic model and strategy to pursue sustained growth over the long term. Our valuation and cost advisory business sustained their market leadership position, and as Angelo just discussed, we found an attractive alternative for our Geomatics business. Above all, we delivered incredible value for our customers. Our end-to-end commercial real estate offerings drive better decision-making for our clients, helping to improve the visibility and flow of information through their critical business process to maximize the value of their CRE assets and investments. For that reason, Altus Group as a company continues to enjoy exceptionally strong client loyalty across every one of our business lines. We've earned a very privileged position in our core markets with exceptionally strong moats around two key growth businesses, Altus Analytics and Property Tax.
Throughout the year, our strategic initiatives help protect and strengthen those moats while providing us with a foundation for sustained profitable growth over the long term. We're very excited about what's ahead for 2020. Let me start there. First of all, our Altus Analytics business reached a critical inflection point, setting us up nicely for 2020 and beyond. The accomplishments in the past year have enabled two notable changes to our operating model in 2020. First, our flagship ARGUS Enterprise product will be predominantly sold on the cloud. The second, we're now fully on a subscription model, offering all of our software products only on subscription terms going forward. Having just recently held our annual internal ARGUS Sales Conference, I can tell you our sales team is fired up. The energy level is as high as it's ever been.
Our hard work to get the product to market and to operationalize our cloud infrastructure is largely behind us now. We already have a solid user base on our cloud platform, and our sales force has done a great job adapting to the new pricing model while building a healthy cloud pipeline of opportunities for 2020. The functional building blocks are in place. Going forward, it's all about the execution, and I have full confidence in this team. Client interest in ARGUS Enterprise on the cloud is solid, and the conversations we're having with clients validate that's a question of when and not if. Clients definitely recognize the value of being on the cloud and how it aligns with their internal strategic goals. The cost savings related to reduced IT infrastructure simply become a positive byproduct for all our clients.
We're very encouraged by our customers acceptance of the new pricing model. Q4 was our last quarter selling ARGUS Enterprise on perpetual terms for existing customers. While we saw some customers buy additional professional license late in the quarter, many of our customers were fairly agnostic, and we enjoyed strength in our subscription sales. This is a solid indicator for our expectations for 2020. Overall, we make great progress in expanding the use of ARGUS Enterprise globally and specifically on the cloud. We start 2020 with a healthy cloud pipeline of future opportunities. Our pipeline includes a good mix of volume from smaller-sized transactions and some large deals that are planning to take advantage of what ARGUS on the cloud offers. We feel optimistic of the migration of our existing customer base will accelerate in 2020.
As you know, starting the Q1 report, we'll commence reporting on our cloud adoption rates, represented as a percentage of the ARGUS Enterprise user base contracted on ARGUS Cloud. As an intermittent indicator of progress, though, I thought I'd share that we're approaching 500 cloud customers at seven months in. We're significantly further along than we were with either ARGUS On Demand and with ARGUS Enterprise when both were first launched. This includes take-up from new clients, many migrations from existing clients who proactively wanted to move over mid-contract. Consistent with our expectations, the early adopters have been largely from SMB customers, but we're also enjoying positive engagement with the larger, more influential firms who will help drive adoption through the ecosystem. Some trends from those recent conversations.
From the customers who want to migrate over to the cloud proactively mid-contract, primarily from the SMB space, the primary reasons include more efficient deployment, data collaboration with their team, and elimination of allocated server space and software management. This is a recurring theme. For new customers, AE is only available on the cloud. Pickup has been very strong, with many customers already operating a cloud-only strategy. This forward-thinking is becoming more prevalent in our industry, and as customers see value in the cloud software and in key features in ARGUS Cloud, like a centralized database that customers can access from any computer. We haven't had any pushback from new clients by not offering an on-premise alternative. We're in some advanced discussions with a number of key service providers and expect a number of them will make a commitment to the cloud platform in 2020.
ARGUS Cloud not only offers significant internal benefits to the service providers, it also provides value in how they deliver their service to their customers. We're on track with our plan. On top of all of this, we're also having conversations with some of the largest CRE customers in the world, where the move to the cloud will be core to their internal strategies. In many cases, the conviction to move is there. Of course, these migrations will happen when the timing is right for them internally with their IT groups, as there is numerous complexities to account for with these large accounts. In many cases, we expect our top 200 customers will take that opportunity to broaden the use of ARGUS Cloud globally as the cloud simplifies their customer environment and enables global data ingestion. This represents an attractive upsell opportunity for us.
Recall, less than five of our top 200 customers have deployed ARGUS Enterprise globally. As mentioned, we have some larger opportunities in the pipeline, but if the volume of these larger deals accelerate, this presents attractive upside to our model that we've presented to you. We continue to have high conviction that this industry is shifting towards platform solutions, and we're seeing some strong indicators by way of new RFPs and the conversations we're having with our largest and global customers. This continues to be one of the most exciting opportunities for our company. With the cloud platform, we're in good shape to address the market need.
At this point, we've not issued any specific guidance for Altus Analytics, but we do want to reinforce that our expectations for 2020 are consistent with our aspirational long-term goal to achieve Altus Analytics revenues of CAD 400 million for full year 2023, with an associated adjusted EBITDA margin at over 30%. We expect to track in line with the potential revenue and adjusted EBITDA trajectory we reiterated in the long-term financial potential slide at our recent Investor Day. At ARGUS, the general run rate of the drivers Angelo covered off from 2019 is expected to continue into 2020. Expect that this year we have shifted all products to be only sold on subscription terms, and that compares with last year, when only half of 2019 still had a high majority of licensed sales on perpetual terms.
Overall, the 70% add-on trend of AA licenses that Angelo referenced has been very consistent over the last couple of years and should continue into this year. As we discussed at length at our recent Investor Day, the cross-sell, upsell opportunity remains substantial. We've been improving our operating model to go after this more aggressively, including a very focused, segmented sales model. Similarly, we expected continued momentum with new customer wins and continued geographic expansion into Europe and Asia Pacific. We expect all of our new AA deals to be on the cloud platform, which has a modest premium on a software license price. This will be a moderate contributor. We also have a growing pipeline of multi-product deals, as mentioned, and we also expect sustained growth from our data and appraisal management solutions. The drivers there will continue to reflect the trends Angelo covered off from 2019.
All to say, we are making the shift to be an enterprise company, and this is defined by global adoption of ARGUS Cloud as a data and valuation standard, a commitment to the full stack of solution related to CRE portfolio and fund analysis, broaden and overlapping relationships with our appraisal management and data solutions offerings, global partnerships with the world's largest service providers, differentiated solutions that will support the major CRE workflows and large global transactions as we become the standard platform for global asset and investment management. Look, we feel really good about the next stage of growth for Altus Analytics business and our ability to get back on the path to long-term, steady, double-digit top line and profitable growth at expanded margins.
The market fundamentals remain exceptionally attractive and support our growth ambitions. We're very well positioned for the opportunity ahead, especially with our cloud strategy, which allows us to improve the economic value of our contracts. With the cloud execution further along in 2020, we're now in a position to double down on new innovation areas to further our long-term growth plan. This would include opportunities in data-driven insights and adjacent market verticals on complementary workflows where we currently have very limited penetration. Let me talk briefly about our CRE consulting businesses. In commercial real estate, institutionalization continues. The trend for outsourcing for CRE specialized services remains resilient. This speaks to the steady demand and the market opportunity, but also reflects the reality of increased competition for talent. 2019 was a phenomenal year for property tax. 2020 is poised to even be better on an organic basis.
Two of our biggest markets, the U.K. and Ontario, will be in their final years of their respective four-year cycle, which typically represent peak revenue potential as case settlement volumes typically pick up. Recall that the high majority of those revenues were based on a contingency basis, and therefore directly hit the bottom line. While it's common to see an acceleration of settlement activities in the final year of a cycle, there's always a continuation of settlement activities that spill over into the following years of new cycles. Also in the U.K., the last year of the cycle experiences the highest annuity billings of the entire cycle. It increased from CAD 4.7 million in 2018 to CAD 9.9 million in 2019, and will even be higher in 2020. Again, Q2 should be our seasonally strongest quarter of the year.
Note that the annuity goes away in the first year of the new cycle in 2021. Looking ahead into the first quarter, we expect that our Canadian revenues will face a modest headwind in B.C. and experience a delay due to change in pre-rule assessments. However, we expect that to be offset by stronger performance in Ontario and Manitoba on a year-over-year comparative basis. Again, this speaks to the strength of our national model, where you see different cycles contributing at different times and with growing scale. This provides for more balanced revenue performance. I should also say that the U.S. performance was very strong in 2019, and we see this as one of our growth planks as we move into 2020 and 2021. Overall, this high-margin business is a strong contributor to cash generation and continues to have an attractive growth profile associated with it.
We have a robust pipeline of appeal work that is expected to continue for many years, and this also provides us with a good backdrop for our consolidated performance while we continue to feel the impact of the transition of our Altus Analytics business in 2020. As you heard today from Angelo, and as we discussed at our Investor Day, we've been making significant progress improving the economic model of this business. We're on track with our long-term strategy and remain well-positioned to continue growing market share organically while improving operations by leveraging technology and data. I was just in the U.K. last week. They are well on their way on this digital transformation. Exciting to be with the team and see that performance as they fundamentally change the industry in the U.K. Congrats to Alex Philpott and his team.
In closing, I would just like to thank our shareholders for your ongoing support and the confidence and trust you place in our team. We're very fortunate to have a stable base of long-term oriented owners who we consider to be business partners. Finally, as you may be aware, we'll be hosting our annual North American ARGUS Connect customer conference at the end of April. The event has grown to be one of the premier real estate industry gatherings, attracting over 400 industry participants, growing every year, and continues to attract a lot of very senior professionals in the industry. This is solid validation of the growing importance of our solutions across their organizations. If you'd like to attend, please contact Camilla. She'll be happy to get you organized. With that said, let's just open it up to the line for questions. Operator?
Certainly, sir. Ladies and gentlemen, we will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before dialing your selection. If you have a question, you can register by dialing star one on your telephone keypad, and you can cancel the question if you wish by dialing the star sign. Please press star one at this time if you have a question. The first question is from Daniel Chan at TD Securities. Please go ahead. Your line is now open.
Hi. Thanks for taking my questions. Good growth in the recurring revenue this quarter. I just wonder if you can give us some color on whether that was more driven from appraisal management growth or whether that's from subscriptions on the ARGUS Enterprise Cloud side of things.
I think it was both. Actually, the hard part of the last couple of quarters is to forecast demand. As Angelo said, we're really happy with the subscription revenue in ARGUS Cloud. In general, we've got two core businesses, appraisal management and now ARGUS Cloud, that really should cause nice recurring and as we transition to overtime revenues as we go into 2020. It was nice performance on both sides.
Okay, thanks. You mentioned, Bob, that you're having some really good conversations with some large global players. Can you help us understand what the sales process entails to have these larger customers adopt ARGUS Cloud globally, and where would you say you are in that sales process?
Yeah, I think the way we've been trying to represent it, is that we're going to count on, and we always have had, a number of large deals in pretty well every year over the last five or six years. The second part of it is, as I mentioned, the service providers are critical. In both cases, as large CRE companies go global, they're looking for a technology platform to be able to control their data, manage their data, get visibility, do a global forecast, and change the way they run their business. That's really, really pronounced for the service providers. They really have to start thinking about how they can control data to create innovation, to find different ways of doing business, and to meet the new customer demand.
The conversations are going great, obviously, because we're causing them to think about deploying a global enterprise solution. You're going to talk to more people, there'll be more decision-makers, both financial and technical. When we talk about becoming an enterprise company, we've got a team in place that knows how to do these larger transactions. They're going to take time, naturally. They're, for the most part, on top of our economic model. We believe that a run rate of a transition of our business to the cloud is going to really drive great economic value. We'll get our two, three, four deals a year that go with it, and then we're trying to move this thing to be the platform for the industry. That'll take a little bit of time.
Great. Thank you.
Thank you. The next question is from Yuri Lynk at Canaccord Genuity. Please go ahead. Your line is now open.
Hey, good evening, everyone. Good quarter.
Thank you.
Hey, I just want to circle back, Bob, on the larger deals. Just how would you characterize the pipeline as it sits today versus three to six months ago? Have your expectations on when you can bring in some of those deals changed over that time?
We didn't really have a pipeline three to six months ago for cloud. It's way better. Look, you got to remember, we brought out the product really in July. We got a series of technology updates that we got to do through 2020. What's cool is we're into really great conversations with a lot of companies about what they're trying to achieve in the cloud, what their functional requirements are. It feels a little bit like when we brought out AE, and we had some of those early adopters, except we're way better at it. Back then, we had real data migration issues. We did a superb architectural job and created a high-fidelity, easy-to-transition type of environment. Now we're talking about what are you trying to achieve from a data aggregation perspective? How are you thinking about workflows?
How are you integrating with your partners in the market? Our pipeline's got a lot better because we're literally meeting the demand of these large CRE customers who are all building data strategies. I characterize it as a lot better. I said in my comments that we reiterated the guidance that we've given over the next few years, and my hope, my goal, is that as this becomes a central standard to these companies, that it's going to really drive over-performance to our expectations as we transition. No, it's going well, both with the service providers and with the large customers. Hey, look, they're putting expectations in front of us before they're going to transition to a full new platform on a global basis. We've got some work to do.
Okay. That's fair. I just want to switch to tax in the quarter. Strong numbers. Were there any contingency wins or anything to call out in the quarter, in Q4 for tax?
No, not anything specific, Yuri. Just overall we saw Ontario's volumes come in stronger. It was weaker, as you know, in the earlier part of the year. Similarly, in the U.K., we experienced the same thing, and the U.S. came in pretty strong as well. It just had a longer tail to its seasonality. There wasn't anything. It wasn't like there was one or two large contingencies. It was pretty evenly spread out.
Yeah. Look, we've been talking Ontario and U.K. for some time now as core areas of growth, and what you're seeing is the strengthening. Honestly, I would say that I gave kudos to Alex. We already know that the Canadian team's amazing, and they got such a great position. Boy, oh boy, the U.S. team is really coming on. They had significant wins in the quarter that are really going to help us going into 2020 and 2021. That really has these guys having their legs under them. Trey Beasley, who runs the U.S., made a bunch of changes in the U.S. at the beginning of the year about how we work, the kind of markets that we're going after, real new focus on large accounts, a real different orientation.
Already our success in Q4 was way ahead of what we would've expected in the U.S., and their backlog's awesome. I think what you're seeing. You'll probably hear us stop talking about U.K. and Ontario, because this is a highly balanced set of opportunities throughout Canada and the U.K. Some great adjacencies going on in the U.K. Business is really moving well. We called out, and we will tell you at the end of the quarter, the annuities for Q2 out of the U.K., and we're doing that just so people don't get too consumed by that. Our goal will be to run by that as we go into 2021 with a completely balanced business. The tax business is firing on all cylinders. That ain't going to stop. It's going to be great. Okay. That's fair. I'll leave it there and turn it over.
Thanks, guys. Sure.
Thanks, Yuri.
Thank you. The next question is from Stephen MacLeod at BMO Capital Markets. Please go ahead. Your line is now open.
Thank you. Good evening.
Hey, Stephen. Hi, Stephen.
Hi. I just wanted to get my head around just a little bit about around the year-over-year EBITDA performance in Altus Analytics. How much of the decline was attributable to last year being a tough comparable? Is that not the right way to think about it?
It's a combination, Stephen. It really is. It's a combination of having had that point-in-time revenue recognition in Q4 of last year, which was a significant amount, coupled with the switch to greater subscription sales in the fourth quarter. We still had some perpetual licenses, we hit more on the subscription side. Just sort of the tail end of the investments that we had sort of ramped up in the late part of 2018, early part of 2019. The quarter still had a bit of that impact. It was kind of a balance across all. It was in line with our guidance. Yeah. I'd also say that as we went through this transition and through the success of our subscription agreements, it was the hardest thing to really get a good handle on.
Still, we were in pretty good shape when we were done, and we liked our backlog going into 2020.
Yeah. Okay. That's great. Then Bob, there's lots of commentary obviously on the conversion. Here we are two months into the new cloud offering. Is there anything that has surprised you very materially to the upside or the downside? I know you talked about some wins, but I'm just curious how have things unfolded relative to your expectations?
I think on the upside, it's been zero friction. We got a high-integrity environment. Customers are signing contracts. We had a couple of transactions in there that were accelerated, I would call, transactions. One with a pretty important service provider that they wanted to go to cloud right away. That was faster than we expected. We had another one where the client came to us with some really interesting ideas about what they wanted to do with cloud, and we're going to work with them to get that environment set up. Look, I think it's been positive. Steve, what do you think? Was there anything on the downside? I did the positive stuff. Anything on the downside? Steve Bezner, who runs overall development for us. Yeah.
No. Overall, it was very positive, and I think it came out of the chute faster. We've put a lot of work into scale, to scale at a target that we've set up for the end of the year. We have done a lot of work around latency and continue to do work around latency. All things were positive and just a lot of work to do still. Next year is all about adding more infrastructure, more resiliency, and those types of things.
Yeah.
Yeah. That's great. Perfect. Those were helpful. Thank you. Just finally on the U.K. tax business, is there any way to quantify what the incremental Q2 impact would be this year? Will it be something that is proportionally similar to how it grew between 2017, 2018, 2019?
Yeah. I'd say that would be a safe bet. Trend is pretty obvious. Yeah. Yeah. Think one year, two years, three years.
Yeah. Great. Okay. Well, thanks so much.
All right.
Thank you. The next question is from Deepak Kaushal at Stifel . Please go ahead. Your line is now open.
Thank you. Hi, guys. Good evening. Yeah, a couple questions. First off, Bob, I think early in your prepared comments, you mentioned how selling or convincing a key influencer to adopt cloud encourages adoption in the broader ecosystem beyond the firm. I was wondering if you could explain more about how that works and perhaps give an example of what you see as a potential there.
Yeah. We absolutely believe that as customers develop a global data strategy, that ARGUS is going to be central to them. The ability to move data into ARGUS from multiple sources from an API, for example, Yardi into ARGUS, it usually happens during a valuation or where people are doing research or companies are trying to get some visibility on their data, and it usually happens in some relationship with an appraiser or a loan. More and more, we want to create this environment where if a customer wants to develop a workflow that automates the way they collect that data, it will force their partners to take ARGUS as part of their workflow, their network. The whole cloud strategy is designed to be able to drive workflows between companies.
If the largest companies in the world want to operate ARGUS Cloud on a global basis, then the appraisers have to be able to deliver ARGUS files. Property managers will have to give information to collect the data into ARGUS or into our data strategy. It's not that different with where we went with ARGUS Enterprise, where if CBRE, JLL, or Invesco ask for ARGUS files around the world, then the suppliers of those customers have to adopt ARGUS Enterprise. It's just now we're going to do it at scale, and it's going to have high value in terms of not only for the service providers but for the customer.
We think that we can create some pretty cool value out of that, because if once customers start sharing and normalizing ARGUS files, we can use that to create benchmarks, to start thinking about indexes, to give visibility, to share information both ways, from Yardi into ARGUS into Yardi, and really set up workflows for the industry. We think there'll be a natural and a lift or network effect, but it'll be accelerated relative to the network effect we got out of ARGUS Enterprise.
Okay. That's helpful. When we think about the discussions you're having with the large global CRE firms in their cloud strategy, is ARGUS Enterprise in the cloud, will that be paced by other cloud adoption of enterprise software like ERP systems or other kind of back office systems that they might have? Or can these be done independently? Or are these customers mostly deployed in the cloud and other systems, and now it's just these tools?
If you think in financial systems, there's two big players, MRI and Yardi, of which we're working with Yardi right now to develop a strategy about how we develop solutions. Don't underestimate internal systems. Still Excel, internal data systems, reporting systems are all going to be able to take advantage of some of the tools that we're building, right? That creates workflow opportunities. On top of that, there's a bunch of emerging companies that are doing some pretty cool stuff like VTS and others. Over time, we'll find ways to interoperate with those. Look, we want to solve customer problems, and the byproduct of that is that we should be in the center of data flow for the industry.
At the end of the day, the big thing that we're trying to help is the improvement of reporting, the ability to do a global forecast, to understand capital planning, to understand sensitivity on a global portfolio basis. That requires input, not just from ARGUS Enterprise, it's from other systems as well. The more we do that, the more that we become integral and central to how data moves around our industry.
Okay, great. I do have some follow-ups on your guidance commentary. With half of your ARGUS Center for Analytics software last year being perpetual, and this year it'll be all subscription, are you kind of suggesting there'll be a dip in revenue in 2020? Or can you naturally grow through that?
Yeah, no.
11%-12%?
Yeah. We're not providing today any strict guidance. If you go back to our investor day, and if you looked out to our outlook to 2023, you'd sort of see the revenue curve continuously growing. We're not expecting any dip. You could use that as sort of a, at least optically, as a guideline for now.
Okay. Similarly on the tax side, clearly, if you're expecting the growth in annuities in the U.K. to double in Q2 year-over-year versus Q2 last year, you're not expecting the overall taxes to double year-over-year. Can growth accelerate versus 2019 or decelerate?
No. What we've said is, in our outlook, that we're expecting another record revenue year this year, and partially it's the incremental annuity billings that we'll recognize as revenue, and partly it's just the overall strength of our pipeline and continued increase in settlements that we'll expect to achieve again this year.
Yes. Okay. Thank you for taking my questions. Yep.
Yeah. Just to clarify, we didn't say annuity would double. I think Steve just sort of asked previously about the trends from Q2 2018 to Q2 2019, and we sort of confirmed that that would be a similar trend, but not a doubling.
Okay. Thank you.
Thank you. The next question is from Paul Treiber at RBC Capital Markets. Please go ahead. Your line is now open.
Hey, guys. Just on AA, in terms of the mix of subscription versus perpetual in the quarter, you mentioned that the mix was skewed positively towards more subscription versus perpetual. Could you elaborate on why the buying pattern changed versus your original expectations based on your feedback with customers?
Yeah, we thought that a number of buyers that would have pent-up demand for on-premise licenses would be worried about pricing risk going into 2020. We saw a little bit of it, but it didn't materialize, and we definitely didn't fan the flames on that. In previous years, or sorry, when we went to DCF to AE, just to draw a parallel, we told them in the last two quarters leading up to it, "By the way, AE is going to be really expensive, so you better load up on DCF and then load up on AE." We did a couple of those cycles. We didn't do that this time. We didn't signal that on-premise subscription revenue would be significantly higher. We actually made our salespeople neutral. We preferred to take bookings up, create a better backlog. Our reps were conditioned not to go for that.
I think probably the third thing is more and more of the industry prefers, or their customers prefer cloud, is what proved out. The timing has worked out pretty well.
Can you share an estimate of the equivalent perpetual revenue that may have been recognized as a subscription or what fell into bookings instead?
No.
I didn't think so, but I thought I'd ask.
You know what? We actually started toying with that, and then you get into some interesting conversations about would they have taken more licenses if it was perpetual. I would say it's not an apples to apples comparison.
Okay. Moving on to profitability at AE. You mentioned it'll probably be similar in 2020 to 2019. Just how do you see operating leverage versus your investments progressing through the year?
We've given at least long-term guidance on margin. Look, the way I look at it is, we basically put a lot of pressure on margin the last few years on a combination of investments in the cloud, the DevOps environment that you need to operate the cloud, new selling paradigm, the work that you have to do to get prepared to do it. We think a lot of that is in place. What we have now is the ability to create leverage through revenue. We've always said that at the end of the day, we're going to see margin improve through this cycle that we're in now, but we want to do it with revenue, and there's a lot of operating leverage in the model because we put the infrastructure in place.
Okay, just one last one from me. With the joint venture for Geomatics, should we anticipate corporate expenses would drop proportionally, or are they mostly fixed?
Yeah, not materially. They would not drop. It's pretty standalone operating unit. There would not be any significant drop.
Okay. Thank you. Last one.
Yeah, the only thing I'd say, Paul, is we're looking at our whole allocation methodology around corporate expenses. Just in general, we put a lot of money into consulting last year for a whole bunch of reasons. We're tracking a plan here that would allow us to really actually get a lot more scale at a lower operating cost, including corporate costs. We want to get some leverage out of that as well.
Okay. Thank you.
Thank you. Once again, please press star one on your telephone keypad if you have a question at this time. The next question is from Richard Tse at National Bank. Please go ahead. The line is now open.
Yes, thanks. Bob, of those 500 cloud customers, how many of those were existing customers versus new customers?
Okay. Gordon, I can't remember. Do it. First of all.
We're not really providing the details, but I think it was.
Well, Gordon, why don't you give a little bit of color?
One-third is existing customers.
One-third existing?
Yep.
Okay. There's your answer.
Okay. Have you made any changes to your sales incentive or compensation to really kind of push cloud here going forward?
I think we neutralized or overpaid on cloud. Part of the cost, as you know, and part of the challenge of moving to a subscription-based model is this is the time of year we're paying higher commissions. That adds to when you're asking the question about EBITDA. That's factored into the cost of the transition towards subscriptions and paying them. We overweighted that coming into the quarter. Again, our reckoning is over time growth coming into 2020. That's the thing we're focused on. That's the number we want to give you and have you be excited about. We may have given up a little bit on expense or EBITDA to get the cloud machine rolling. I think 500 is a really good number for any company.
We were happy to pay for that because we're playing a long game, and as Angelo said earlier, this is revenue that has better economic value associated with it.
Okay. Just the mechanics for existing customers converting to cloud. If you paid for a license before, are you essentially replacing the maintenance with subscription? If so, what's sort of the average incremental price difference on that?
Gordon, you want to do that one?
Sure. We sort of talked about this at the Investor Day as well, is for existing customers, it's roughly around a 40% uplift on what they're paying us today in maintenance when they migrate over to the cloud. That's sort of the general level on what their fees would be.
Just technically, if they have an instance license professional, do they sort of still keep that on-premise while paying that subscription, or is it starting to move into your infrastructure?
They don't keep that on-premise infrastructure. They move their data and everything into the cloud. Once they've done that, they're operating now in the cloud.
Okay. All right, great. Thank you.
Maybe I just add, there's three scenarios. Just keep paying maintenance, you have an on-premise. You want to add an on-premise user, you have to buy an on-premise subscription license. If you want to go to cloud, you have to have a cloud subscription license.
Yeah.
Those are the three scenarios that contribute to overtime revenue.
Okay, great. Thanks.
Thank you. There are no further questions, Mr. Courteau. I would like to turn the conference back over to you, sir.
Well, thanks everyone. I'm way more excited about 2020 as this thing's rolling. We feel really, really good about our ability to deliver on our customer promise. I just finished by saying that we've got a tremendous investor base, and we're looking forward to that partnership that I described earlier continuing to grow for both of us. Thank you.
Thank you. Ladies and gentlemen, this concludes today's conference call. Should you have further questions, please contact Camilla Bartosiewicz at Altus Group at 416-641-9773. That number again, 416-641-9773. We thank you for your participation and ask that you please disconnect your lines.