All participants, stand by. Your conference is ready to begin. Good afternoon, ladies and gentlemen. Welcome to Altus Group's first quarter 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 meeting over to Ms. Camilla Bartosiewicz. Please go ahead.
Thank you, Reta. Good afternoon, everyone, and welcome to Altus Group's first quarter results conference call and webcast for the period ended March 31st, 2019. For reference, our earnings results news release was issued after market close this afternoon, and it is also posted on our website along with our interim MD&A and financial statements. Please visit altusgroup.com to obtain these documents and for more information. On today's call, we will begin with an overview of our performance, including a discussion of our financial results and noteworthy developments. We will finish by taking questions from analysts and institutional investors. If we miss anyone, please get in touch with me directly after the call. Joining us today is Bob Courteau, Chief Executive Officer, Carl Farrell, President, and Angelo Bartolini, Chief Financial Officer. Before we get started, please be advised that some of our statements today may contain forward-looking information.
Various factors and assumptions were applied or taken into consideration in arriving at the forward-looking information that do not take into account the fact of events announced today. There are also numerous risks and uncertainties that could cause actual results to differ materially from those set out or implied by such statements. They are all described in the company's filings on SEDAR. Our comments and answers to any questions must also be considered in the context of the disclosure in those materials. Also, please be reminded that Altus Group uses certain non-GAAP, non-IFRS measures as indicators of financial and operational performance. Readers are cautioned that they are not defined performance measures under IFRS and may differ from similar computations as reported by other similar entities, and accordingly, may not be comparable to financial measures as reported by those entities.
We believe that these measures are useful supplemental measures that may assist investors in assessing an investment in our shares and provide more insight into our performance. With that, I will now turn the call over to our CFO, Angelo, who will start with a review of our financial performance.
Thank you, Camilla, and thank you all for joining us on the call and webcast this afternoon. I will begin with a consolidated financial review of our performance and then drill into business segment performance. Before I do that, though, I would like to highlight a significant change in IFRS that occurred in the quarter. As you know, IFRS 16 substantially changes the treatment of operating lease obligations by effectively moving these obligations onto the balance sheet and recognizing the use of the corresponding assets through depreciation and interest expense rather than as rent or occupancy expense on the P&L. We have implemented IFRS 16 using the modified retrospective approach, which means that the change of the treatment is only reflected in the current period and beyond. We have not, in other words, restated prior periods.
In both our interim financial statements and MD&A, we present specific line items separately that relate to this change to enable the reader to understand the specific impacts to both the P&L and balance sheet. A summary of the impacts can be found on pages 13 and 14 of our MD&A. In order to provide the reader with comparability with past periods, we have modified our definition of the non-GAAP measure adjusted EBITDA and adjusted EPS to reflect a rent or occupancy expense that would have been measured on a consistent basis with prior periods. We will continue to report in this fashion for the balance of this year to guide users in this transition, but we'll monitor best practices and determine whether it is best to alter these metrics in the future. With that, I will now turn to our performance review.
Consolidated revenues were CAD 128 million, up 3% from prior period. Revenues were moderated by property tax, which was down 8%. Altus Analytics showed strong growth, with revenues growing 15%. Meanwhile, we experienced single-digit improvements in both our valuation and cost advisory and Geomatics businesses. Consolidated adjusted EBITDA was CAD 13.9 million for the quarter, down 11%, primarily due to decline in property tax revenues. Basic and diluted loss per share in accordance with IFRS was CAD 0.01 versus a loss of CAD 0.06 per share last year. Adjusted earnings per share for the quarter were CAD 0.23, in line with last year. Moving on to the segment review. In Altus Analytics, revenues were CAD 46.8 million, up 15%, achieving the target we had set out in our last call with you. On the software side, we saw higher subscription revenues driven by both AE subscription deals and AOD sales.
Maintenance revenues have also climbed, and we continue to experience above-industry average renewal rates of approximately 97%. On appraisal management, we continue to see good growth in this area. We are increasing the size of engagements with our existing client base, particularly in Europe and Asia, but we are also signing new clients in North America. Recurring revenues or contract values for software subscriptions are recognized ratably over the contract term were up 23% from last year. If we were to normalize revenues on this basis, our recurring revenues would represent 77% of total revenues, up from 72% last year. The adjusted EBITDA for Altus Analytics was CAD 9.8 million for the quarter, up 19%, a reflection of higher revenues. The margin was 21% versus 20.3% last year, reflecting higher adjusted EBITDA, but moderated by continued investments, particularly in development of our cloud applications and in increased sales towards our European expansion.
Our general practice has been not to provide guidance. As our software business moves more into the cloud and becomes more SaaS-oriented, the one-time recognition of software sales will lessen. We feel that there is a benefit to providing you with a view as to how our revenues will scale over the next several years. We are planning to schedule a follow-up analyst call in mid to late June to provide you with this view. We're feeling good about this year's performance, while keeping in mind of the large enterprise deals that occurred in Q2 and Q4 of last year that provide us with a bit of a tough compare. We are feeling even better about our 77% recurring revenue base and its growth projections for the balance of this year.
Growth at our commercial real estate consulting segment was subdued by lower property tax revenues. Revenues were CAD 70.6 million, down 4%, while adjusted EBITDA was CAD 12.1 million, down 23%. Revenues were CAD 44.7 million, down 8%. On a sequential basis, our revenues were 15% higher. We had an improvement on the U.S. side, we were facing a tough compare to last year's performance in Western Canada, particularly in Vancouver and Alberta. We were lower in Ontario and the U.K., where government-driven process changes resulted in fewer appeal settlements, which only really mean there is a deferral of revenues. This was all expected and consistent with what we have been saying on previous calls. Our outlook for the year, however, has not changed. We expect an improvement in year-over-year performance in Q2 and record revenues for the full year overall.
We are on track with our expectations of appeal settlements and see indications of continuous improvement in subsequent quarters. I would like to point out that we have annuity billings that occur in Q2 in the U.K. From a seasonality business, this could be the strongest quarter of the year. Valuation and cost advisory performed as expected, with solid growth coming from our cost practice. We expect to see steady performance and stable margins as we move forward. In Geomatics, despite the continuing market challenges it is facing, revenues, earnings, and margins improved. We continue to expect to see these improvements for the balance of the year. With that, I'll now turn it over to Bob.
Thank you, Angelo. Good afternoon, everyone. We are off to a good start this year, and I'm pleased with the robust financial and operating performance in the first quarter. Altus Analytics, the momentum we've had over the last three quarters with strong double-digit recurring revenue growth is a leading indicator of the progress against our strategic initiative to drive a higher mix of recurring revenues and ease the shift to a full subscription model as we roll out our cloud platform this year.
We've been accelerating revenue growth, leading with our Argus Everywhere strategy, pushing hard on cross-selling and upselling with our approximately 4,000 ARGUS Enterprise customer base, expanding geographically into Europe and Asia, focusing on the global deployment of ARGUS Enterprise with our largest clients, pursuing large enterprise multi-product deals, all while innovating with new cloud applications to pull customers into the cloud environment and to position ourselves for a longer-term opportunity in data. It's a multilayered strategy that we followed over the last few years, and our operating model shows we are creating great economic value and are on track with our plan. We're trending very well against our internal KPIs and making very good progress, including add-on sales continue to be a significant contributor, up 12% over last year and now roughly two-thirds of our AE license sales. Recurring revenues are increasing, up 23%, as Angelo mentioned.
Revenues outside of North America continue to improve, up 26% from last year, and our customers are happy as AE maintenance retention rates continue to consistently average around 97%. Our product roadmap has been significantly modernized with cloud capability, a little bit on that in just a minute. We continue to have strong sales momentum and attract higher-value deals. Case in point, during the quarter, we closed some notable deals, including a major consulting firm and a service provider who extended the use of ARGUS Enterprise across their organizations. Our appraisal management group closed 18 net new deals in the first quarter, including a mixture of expansion deals with our existing clients, as well as new client relationships.
Our appraisal management new client relationships may start small, but they tend to grow significantly over time on average, and we've seen customers increase their spend with us by 29% over three years. As Angelo mentioned, we also had good growth from Europe and Asia, where we have first-mover advantage, reinforcing the theme of globalization that's so prevalent in the industry, and their need for standardized and best practices approached evaluations. Equally important, it extends the use of ARGUS Enterprise in these markets. We go to the market together with our customers, and that gives us the network effect that we need in these emerging markets. For instance, a new deal with a U.S. large global fund manager for their Asian open-end fund includes us providing AE modeling services for them as a start.
Equally exciting, a deal that we closed with one of the largest open funds in the region has mandated in its valuation RFP that ARGUS Enterprise be used on all valuations in that market. This is a critical trend for Argus and appraisal management in APAC, I would like to recognize the significant contribution of our new appraisal management leader in APAC, Raj Singh, who hit the ground running. Our international software sales head, Cassian Scott, who's also done a very nice job for us as we continue to grow in Asia Pacific. Overall, we're seeing really strong indicators across the organization, be it in pipeline, marketing campaigns, sales, and go-to-market productivity, size and type of contracts, retention rates, and so on. We're very nicely positioned. Look, we've been running very hard.
We don't always get to stop and acknowledge the important progress we've made over the last three years, which has seen revenue grow by over 46% and earnings grow by over 37%. During this time, we've also established ARGUS Enterprise as the global valuation standard. We enhanced our cross-sell and upsell capabilities with new functionality and products and shifted to enterprise multi-product transactions. All the while, again, innovating with our cloud strategy and establishing a foundation for our eventual position as a data integration and data standard platform for the global commercial real estate industry. This is our investment in the platform for the future. We significantly strengthened our market position and grew our A customer base by over 500% in three years, including adding thousands of new users, hundreds of thousands of A models on our software, and we've done this on a global basis.
It's our track record, and as you've heard me say, I consider ourselves a young tech company. We have an amazing success in a very short period of time, and again, a very exciting platform for the future. As many of you are aware, last week, we held our annual Altus Connect user conference, which attracted record attendance, including a notable increase in attendance by senior executives. Over the years, our Altus Connect conference has become a key industry gathering attended by big companies such as Allianz, Brookfield, Hines, Ivanhoé Cambridge, as well as many of the world's largest service providers, where people come together to collaborate on key industry issues and benchmark their own practices.
Key customer themes in this year's conference were all about their own data strategies, the adoption of cloud solutions, the changing landscape of PropTech adoption amongst their own organizations, and there was a lot of time that we spent discussing their own workflow barriers and business problems. Our approach to the cloud transition differs from what other software companies have traditionally done. Others have rewritten the software on the cloud, whereas our approach has been to pull the customers in with new value-added functionality. We keep selling ARGUS Enterprise. We give them an option about where they're going to operate ARGUS Enterprise, and we build incremental new capability in the cloud. To make it more seamless for our customers and overall less disruptive, we're pulling our customers in with compelling new applications that augment and protect their existing investment in the on-premise deployment of ARGUS Enterprise.
The cloud platform will pull them in by providing them with new features and functionality, improved collaboration, seamless integration, while leveraging the ARGUS Enterprise calc engine. Of course, in a cloud environment, users will be able to integrate, share, and gain insights from their own ARGUS Enterprise files. Access new web apps for various business cases, and we've also integrated this with Taliance and Voyanta. In the future, we'll make APIs available to open up this incredible data-sharing opportunity with our partners and third-party applications. This will release data on a global basis. At the conference, we introduced a new edition of ARGUS Cloud, featuring a benchmarking and reporting capability that allows customers to utilize comparables and dashboards to benchmark existing assets and portfolios. Future functionality will enable benchmarking with third-party data and aggregated ARGUS Enterprise peer data.
As of July, we will offer clients cloud-only deployments of ARGUS Enterprise, while of course, still supporting full integration with existing on-premise ARGUS Enterprise. As well as support, it's very important, of multi ARGUS Enterprise instances. We believe this will add value to customers, eliminating internal systems management and related infrastructure costs, enhancing better data, which will encourage better collaboration across organizations. Going forward, we plan to release new features every 90 to 120 days to the ARGUS Cloud platform, and we'll continue to develop new cloud apps. We expect this will broaden our cloud adoption, add new client value, and importantly, allow us to add value to the data to our customers and the industry. The intersection of the AE global valuation standard and the data standardization that results on a cloud platform is exceptionally valuable.
The byproduct is the most valuable global industry data that we believe will massively create information to change our industry. Beyond our software strategy, our appraisal management offering continues to be a strong contributor to Altus Analytics growth and also creates incredible data value while we're doing that. It's performed consistently well. Revenues have been steadily growing every year since we acquired this practice, up nearly 130% in the last five years. This business, under the global leadership of Rick Kalvoda, is a perfect case study for how growth can be fueled by innovation, from reinventing our service offering with new data and analytics capability to positioning ourselves for new market opportunities, be it new geographies or new client needs. This group continues to exploit every growth avenue.
Underlining our future plans is to leverage Argus in the cloud and to create congruency for our appraisal management clients with data exchange and data bridge. Although we already have significant market leadership, there remains plenty of white space for growth internationally, and even in our core U.S. market, where we believe we have potential to nearly double our revenues as we expand our penetration with open funds and closed-end funds and expand with separate debt and sovereign wealth funds and offer additional service capability. Overall, we feel really good about the next phase 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.
Despite some of the transitional investments of late, we are absolutely driving towards being a Rule of 40 company in the future, and our subscription strategy will only help facilitate that. The market fundamentals remain exceptionally attractive and support our growth ambitions, and we're very well positioned for the opportunity ahead with our cloud strategy. It shall only improve the economic value of our contracts. Let me finish briefly by talking quickly about CRE consulting. As Angelo stated, we reiterated our guidance for record revenues and property tax this year. We've had a good start with balanced performance, and the U.S. is strong, and we had a strong start given our compares from Q1 last year, which was an extraordinary year. Our performance speaks to the power of the business model, which includes a broad weighting of geographies, different cycles, jurisdictions, and even tax types.
Our opportunity for the tax business as a global business with critical mass is also very exciting. We're planning a very strong year for 2019, 2020, and beyond. Our cost, Canadian valuations, and Geomatics businesses are also exceptionally well-run and stable contributors to our growth and profitability. We have made significant progress in implementing technology in their business processes, and we're excited about some of these advances, such as the use of ARGUS EstateMaster with data in our cost group in both internal and client workflows. In closing, I'd just like to reiterate that we remain in growth mode. We're very energized by the market opportunity ahead of us. Although there's many moving pieces in our strategy, you can count on us being consistent in four areas. We have a strong track record for execution.
We have significant market advantage today. We're pushing that advantage in every market that we serve. We have innovations in every one of our businesses. We have the best people. Let me open it up for questions.
Thank you, Mr. Courteau. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star 1 at this time if you have a question. There will be a brief pause while the participant register for questions. Thank you for your patience. The first question is from Richard Tse of National Bank Financial. Please proceed.
Yes, thanks. Bob, kind of curious to see why you're so confident about 2019 being a record year for tax. Do you think that there's going to be some abatement when it comes to the procedural changes in Ontario or the U.K., or is it something else that has that confidence high?
Well, we had a good quarter. We know what Q2 is looking like now because we have short-term visibility. We have the benefit of the billing in the U.K. We know what our pipeline is. We measure it effectively. We're seeing settlements at a level that we expected by this time of the year. We talk to the government authorities regularly, so we feel good. I think the current consensus reflects a record year. We feel very good about that.
Okay. You made a few acquisitions last year. Just kind of wondering if you could maybe refresh us on how acquisitions will play into your growth strategy here going forward.
Yeah. Look, just think about our business model here. We're the real estate software company in every market in the world. We have more customers than virtually all the other real estate companies. We're a standard for valuation in Canada, U.S., and the U.K., and very quickly adding Germany and France. We're being adopted in Asia and other markets in Europe as a valuation standard. We're turning that into a data standard through the cloud. We are integrating Argus, Voyanta, and Taliance for a full stack. We're going to be the company that can give a customer full visibility on a global capability at the asset portfolio and fund level. We can do tuck-in acquisitions because we have the platform in terms of the people to deliver to our customer base.
We're building organic solutions in a faster pace because we have a cloud platform to do that. The ability to the business model that we've been working on, and with Carl, we've accelerated over the last year, gives us an opportunity to add functionality organically in partnerships and through acquisitions. That's been the game plan. We want to be a full stack for the front office for commercial real estate.
Just one last one for me. I'm not sure if this is for you, Bob or Carl. Are there any changes that are required on an operational basis as you shift the business towards data and cloud? If that's the case, are those costs already sort of baked in right now, or should we expect a bit more spending here going forward? Thanks.
This is Carl speaking. We have an AOD, ARGUS On Demand product, which basically operates in a hosting environment in a similar way as a cloud environment. We've been operating that environment for several years. We have north of over 800 customers inside that environment. Internally, we have the experience and the organizational infrastructure to basically pivot to cloud now. The processes are in place. All the relevant functions are in place. We mentioned that we did some transitions with the sales team last year to get them more oriented. All that infrastructure that a normal company would put in place for its first time going in this direction, we've been putting in place over the last couple of years.
Okay, great. Thank you. Thanks, Angelo, for providing those EBITDA numbers. That's actually very helpful, the comparables, though.
Great. Thank you.
Thank you. The next question is from Yuri Lynk of Canaccord Genuity. Please proceed.
Hey, good evening, guys.
Hi, Yuri.
Hi, Yuri.
I just wanted to follow up on the tax outlook. I joined the call a little late, but Angelo, did you touch on the cadence of the quarterly improvement in tax EBITDA that we should see? I think you were pointing to Q2 last quarter as being a big quarter.
Correct. Yes, I did touch upon it a little bit. Q2, from a seasonality standpoint, we also expect it to be perhaps our strongest quarter. The main reason for that is the annuity billings that we have in the U.K. Given that, and given that we're starting to see a pickup in actual cases being settled, gives us lots of confidence in Q2 and the following quarters.
Okay.
I should add as well, Yuri. Again, in the U.K. as well, that's tied to those annuity buildings, it's tied to the contracts that we have. We're now in the third year. As you move forward in the third year, we now get a percentage of the savings for three years. The value of every appeal settled in the U.K., starting April 1st, is higher than it was previously.
Right. I guess, just so I can get the distribution of EBITDA for the year, it's all going to come basically in Q2 and three, right? Because Q4 is usually a weaker quarter.
Well, what you're referring to is the allocation that we do at quarter-
Yeah
four of the bonuses. Substantially, though, it's not as weak as it would indicate, right? It's just really-
Right
yeah.
Okay. Sticking with tax, Bob, the U.K. acquisition, CVS is under your belt now for over a year. What's the M&A outlook look like in that segment, especially in the U.S. where there's been some consolidation?
Yeah. We got a team working on it, dedicated these days, and as you know, these things take time. Most of the acquisitions that are of interest are private. Sometimes held by family, and so lots of lunches and dinners. We're also now limiting our focus to some of the large ones. We're targeting organic hiring and small strategic tuck-ins that might help an industry or in a state that we think is material, because many of our customers are national. We can build off our current North American platform as well, where you take a large real estate customer onto a North American platform. We're not depending only on acquisitions, but we got a full-time team kind of dedicated to try and make it happen.
Okay. That's it for me. I'll turn it over. Thanks, guys.
Thanks, Yuri.
Thanks, Yuri.
Thanks.
Thank you. The next question is from Paul Steep of Scotia Capital. Please proceed.
Great. Bob or Carl, maybe you could talk a little bit about how on ARGUS Enterprise, in terms of the mix of subscription versus perpetual, I know you called out strong growth in subscription revenue, but how much of the sales force has actually sort of transitioned over to selling on a subscription basis versus more traditional on-prem? Thanks.
Yeah. What we've been doing is targeting clients that we felt we could get better economic value out of by doing subscription agreements. Obviously, they're the large ones. This goes all the way back to when we first rolled out DCF. We knew we had to create, with the largest companies in the world, a business model or sorry, a business contract that allowed them to consume these ARGUS Enterprise on a global basis, and to do it in a way where they were advantaged by going quickly. What we're doing now is we're engaging in conversations with many of those same customers on a subscription basis now to update their contracts. Timing's working on our side because many of them are coming up at a time where we get an opportunity to, then again, reframe.
These companies, these large ones, both services providers and large global customers, are our friends. They're the ones that benefit when we roll out Argus. They create advantage to it. The strategy, and we're going to talk some more about this in this investor day, I think we called it, or we're going to give an update.
Investor call.
Investor call, where part of the strategy will be to target some of the large companies that we think are going to create, call it tech envy or pull for these solutions, and put in front of them capabilities that allow them to go first. That's the idea. We've been doing that all along. Look, AOD, Voyanta, Taliance subscription agreements, the extension of some of the agreements are all really contributing. Even valuation management, when you look at Altus Analytics as a whole, position us for a nice turn. Now what we're going to try and do over the next little while, I'm getting the wave from Camilla, don't say too much, is now really organize ourselves with the clients that we want to lead this charge. Then over some time, we'll be only selling solutions in this way.
Can I just build on what Bob said as well? We announced at Altus Connect that we're going to focus on putting new functionality in the cloud every 90 to 120 days. We released our first April release. We showcased it. There's another one coming in July. We're hoping, not hoping, we're expecting that this new functionality will also strengthen the strategy by pulling more people towards us in the cloud as well. The sales teams have been preparing for that. That's, again, a very strong part of what we're trying to get done this year.
The second part of your question is, yeah, we definitely have made it neutral for the salespeople to sell either. In fact, in a few cases of what we consider to be target important partners, customers, we're motivating those same salespeople to do it in subscription. We're giving them a higher premium for subscription for those strategic clients that are out there.
Great. That's helpful. On Altus Analytics, can you just maybe clarify, with the ramp-up in expenses, are we now at a level where we should sort of think of that as steady state and the growth level sort of tapered off? Obviously, there'll be incremental growth if you sold new wins, but in terms of fixed costs that you've added to the business, are we more or less there now?
This is Carl. One of the contributing factors on the expense growth in AA has been the expense of our cloud development. At the previous call, we discussed we're going to hit a peak around the mid-year, and then we're kind of flattening out now those costs. As we transition development resources from old technology to the new technology, we'll increase the acceleration of a new product coming to market, but with the same core set of resources and expense. We said we're trying to flatten the cost now around development, which will kind of sustain the peak now, but we're not reducing the development effort either. We're just moving the resources from old to new.
To be clear, the answer is yes.
Okay.
We're at a peak.
Great. One last clarification, just on property tax, you mentioned that the settlement rates are up, which is great to hear that we're on track for Q2 billings. Have volumes actually hit the normalized levels you're looking for in the business? Are we still struggling a little bit to get things working through the system the way they should?
Paul, this is Angelo. We're not at the levels that are historical averages. We're well below those. We're hitting on the targets that we established going into this year, given where we were last year. We're hitting our forecasts, and we're still confident with what we've said. We still expect a significant ramp-up throughout this year.
Yeah.
I don't know if that helps.
Historical, there is no real historical levels because the reality is that the cycle will, if you look at tax as a whole
The cycle will evolve in a way where we know that 2020 is going to be better than 2019, just by the volumes and the way the model is set up. You're giving me a look here.
No.
Angelo, take over.
That's true, Bob.
You can't do an average, is my point. What you can do. You're looking at me.
I think you can do.
Okay.
There is a historical view in terms of just what versus the last cycle that, if we're talking about the U.K., we would be looking to what the historical averages were. There was definitely a ramp-up in the last cycle in 2010 as well. They hit a certain cadence. It's not perfect every quarter. There is some variability quarter to quarter. There's an established kind of cadence.
Right.
We're just not there at this point yet.
No, my point is that we're not at the peak cycle.
Correct.
Peak of the cycle.
Correct.
Right.
Yeah.
Thank you.
Thank you. The next question is from Deepak Kaushal of GMP Securities. Please proceed.
Hi, guys. Good evening. Thanks for taking my questions. Hey, guys. Bob, first question, I wanted to kind of make sure I understand your earlier comments on the appraisal management in Asia-Pac.
Yeah.
Am I understanding this correctly that appraisal management is driving adoption for ARGUS Enterprise?
Yes.
Is that something that?
Happened in Europe, happened in Asia. If you follow the logic, if we take a U.S.-based appraisal management client to Europe and Asia, if they use ARGUS Enterprise in all of those markets, it not only becomes a consistent valuation standard, not too worried about what the valuation nuances are in Italy or France or Singapore. What they want to do is to bring those values back into the U.S. markets in a consistent fashion. What's cool about that is they know it. Many of the customers that have gone first with an Argus Everywhere strategy also are bringing that data back in a way that they can use it for multiple purposes. What we're doing is we're going to enrich that environment without them having to build them back to proprietary environments. We're going to be the environment they can bring that data back to.
It serves both purposes. Well, all three, frankly, for that matter. One, you get a global view of your portfolio. Two, you get to reuse the data. Three, it supports the business workflows and the business processes to actually increase productivity in your business.
Okay. That's very cool. Is that the key driver for ARGUS Enterprise growth internationally, or is that just a sweetener that's adding on? What are the relative growth rates?
That's a model that we envision for same customer growth. You saw, I said it earlier.
Yeah.
Our same customer growth is not limited to Argus customers. It's across these global large customers where we can sell all of our capabilities, including Voyanta and Taliance to really light up that whole data and information management environment. We're also driving new customer acquisition into these markets as well with very focused marketing programs. With the cloud now, we have a very distinct advantage at the entry end of the market and also the high end of the market, but we're very focused on new customer acquisition as well. That's an important point, Deepak, because in Asia, we've closed actually really big deals, but not as a valuation product, more as an asset management product, right? Similarly, we've done that in Europe when we've gone to the market as well.
Okay. Excellent. Now with analytics up in mid-teens in terms of growth, what are the relative growth rates for appraisal versus Argus?
Good.
I thought I'd try. Any kind of color you can give would help.
Hey, look. You know what, it's interesting. The way I'll talk about that is that these businesses, including Altus Data in Canada, are becoming congruent. The things that we build in Canada are going to contribute to the software, in terms of how we imagine monetizing data. The integration of ARGUS Enterprise, now ARGUS Cloud with a data exchange and our attribution product, create a cloud-based workflow. It's tempting to want to start breaking this apart. We're going the opposite way. We want to sell this as an integrated platform for customers to operate their whole businesses. That's number one. Number two, at any point in time, you might not have liked the economics of valuation management because when we went to Europe, we added 12, 15 people, and we carried that cost for two years, right?
Because we did that, now valuation, the appraisal management team's bringing ARGUS into Europe. Now we're investing in the ARGUS software, which drives down the margin for ARGUS. The whole business has operated quite nicely because we have a model that really allows us to invest, integrate, and as Carl always says, build a front office platform, an integrated front office platform, right? Breaking out those dynamics takes away from the power of the business model, so to speak. We're seeing a lot more sales opportunity where the multi-product opportunities between valuation and software and data as well. We've seen a lot more of that.
Hmm, interesting. That's pretty interesting for me. Thanks. I just do have a follow-up on the tax side in the U.K., for Angelo. Angelo, on the annuity billing pickup you expect to see in Q2, does that capture the contingency portions, or does the contingency portion only come in when there is actually a settlement?
The contingencies only come in when there is an actual settlement.
Okay.
Yeah, go ahead.
Go ahead. Yeah.
No.
Just on the breakdown of when we look at U.K. property tax, what's the rough breakdown of contingency versus annuity billing? It's still heavily contingency based, am I understanding?
Oh, yeah. It still is for the quarter. It's significant. Let me say that. It's significant. In the quarter, it is significant. I'm not going to provide a relative because we're just not doing that. I would say that it's significant.
Okay. The logic would be then, if this is correct, you'll get a pop in Q2 from the annuity billing.
Correct
As the years go on, you'll get the ramp-up in contingencies.
Correct.
As Bob said, through 2020.
Correct.
Okay.
Yeah.
Excellent. That's it for me. I'll pass the line. Thanks.
Thanks. Thanks, Deepak.
Thank you. The next question is from Paul Treiber of RBC Capital Markets. Please proceed.
Oh, thanks so much. Good afternoon. Just wanted to clarify a comment, your prior comment on AE subscription versus perpetual. Just so I have a better understanding, if an existing customer has a license, I think what you're saying is that they won't go through a forced upgrade. Is it essentially that you're giving them credit for that license to be exchanged for a user in the cloud? Instead of selling incremental licenses for new users, you expect just that the new users would deploy in the cloud?
The way to think about it is those customers that have an existing ARGUS Enterprise do not lose the value of that license. If they have that license in place and they want the incremental functionality of the cloud, it's an incremental fee that we would bill in addition to their maintenance, and they would sign a new agreement when they do that because they need to sign a cloud agreement, right? When you start thinking about this at scale where people start wanting to collaborate and drive the use of data in the cloud, we imagine that we will be negotiating maintenance agreements broadly with customers because you're not going to do these one-off.
Companies are going to want to make that functionality, and that'll be part of our transition plan as we go through 2019 going into 2020 to make it favorable, not unlike what we did with DCF in the past to go early. Again, all of this work will smooth out the transition.
The other interesting part of that is that if they are not owning an ARGUS Enterprise license, and they want to start taking advantage of things like benchmarking in a department or among an asset management group, they'll have to buy a full cloud license. We won't piece part it. At some point, perhaps we'll only have one offer. I shouldn't say that, one configuration for what we would call the enterprise version. Do you want to add anything to that?
Yeah. The July release of cloud gives us a cloud-only version of AE.
Okay.
New customers coming after July, brand-new customers who do not have ARGUS Enterprise on-premise, we can take them straight into the cloud. We put them in a much cleaner environment after July.
Not to get ahead of ourselves, because we're going to actually articulate this, Paul, but if you just take Carl's last point, the pace at which we do that with the largest customers creates some tension between perpetual revenue this year.
Yes
Which drives economics this year and higher value in future years. Most importantly, just like we've been doing all along, eases the transition if we do this right. What we're going to try and lay out for you guys is what our expected transition's going to look like. Both net new, existing customers, new functionality, and give you a view of this. We haven't done it today. We didn't do it now, because obviously we want to protect our final strategy in terms of customer pricing. That's how we're thinking about it, Paul.
Okay. That's helpful. Just moving on to Taliance. It looks like the disclosure in the MD&A based on MyMass suggests that it contributed CAD two and a half million in revenue this quarter. That looks like it's up quite a bit from Q4. Just what drove the quarter-over-quarter increase in Taliance revenue? How is the year-over-year growth rate of Taliance, if you can disclose that? Or how is it tracking versus your expectations at the time of the acquisition?
Paul, this is Angelo. It's pretty much tracking as we expected it. It's up a little bit, but it's not up significantly from the acquisition point.
Plan. Yeah.
It's tracking to our plan.
Yeah. Again, the advent now that we have full integration with Voyanta, with ARGUS Enterprise, we're seeing significant interest now in bringing Taliance into these environments.
Yeah.
We're feeling good. That was a key point for us to get that integration out.
Yeah. We're what are we? Three quarters in now. We had to do the integration. Paul, this was a European product, right? In European, for the most part. We do have customers in Canada, couple in the U.S. The U.S. team's ramped up now. Pipeline's good. We feel really, really good about it. What's interesting about all of this is that, again, coming back to the transition to subscription, these are the kind of things that ease us into it and also allow our. Part of the transition, particularly, Paul, you understand this. Part of this is getting our sales force organized to sell subscription-based SaaS products, right? By having Taliance and Voyanta, we got a really nice jumpstart there on our execution of our sales strategy. A lot of these things have benefit beyond the product.
We're feeling pretty good about it.
Just one last one for me. Just looking at a high level in the PropTech space, VTS put out a press release, is talking about that they did a round of financing and it valued the business at CAD 1 billion. What do you think about in terms of either deploying capital in the PropTech space or being a participant or partner there in that opportunity?
We have. We're going all the way back to Real Matters, Waypoint, REIX. Honest Buildings, we participated with Brookfield on that deal. Part of the reason that I got into this is way back when we were looking at making an investment with Hightower and/or VTS before they were combined, and we didn't do it because on one side you had one set of real estate customers, and on the other side, you had a different set of CRE customers, and we didn't want to upset one or the other by actually picking one of them. Even way back then, we were looking at that and we look at. Like I know the metrics of VTS. I know the team. I just was with Nick two weeks ago speaking at Columbia. We're really good friends.
We see a lot of opportunity to create product together down the road. The first point is we're investing and we believe in it. We've even got a little bit of money in some of the venture capital companies, which gives us tremendous insight into what's going on. Two, if you looked at Argus Connect, we had VTS there, Honest Buildings, REIX, Waypoint. They were prominent. We bet on those companies in terms of our partner strategy. Three, we think with our APIs, we're going to be able to build some really cool stuff. There will be a consolidation phase in our industry, and we expect to be part of that. By being friends with these cool companies. When they get to decide who they want to work with, we'll probably be front of the line. Great. Thanks. Take my questions.
Thanks, Bob.
Thank you. The next question is from Maggie MacDougall of Cormark Securities. Please proceed.
Hey, Maggie. Hey.
Some talk about cost growth in analytics easing towards the back of the year. We've already seen recurring revenue growth pick up. Wondering at what point in the future, if it's this year or next year, do you think analytics can consistently start hitting that Rule of 40 target?
I told you somebody would ask me that. Part of our goal in setting up an investor call is to talk about the churn, and show the economic value, the benefits of the work that we've already done in moving to subscription. We think that we're going to have a really good story around that. That is the fastest path to Rule of 40 growth. We're not going to pinpoint the date, but we'll show you the economics, and then it'll be about really continuing to drive our bookings at that point. We've been working on this for two years, all the way back to AOD, and we believe that the leading indicator, we started talking about this a year ago, was going to be recurring revenue growth. It shows that we can sell this way, and we have the products to do it.
We believe that the infrastructure economics are not bad. We've got lots of products to sell. We have a good pipeline. We don't think you guys will be the judge of this. We don't think we'll have the drama that others have achieved by our strategy, including the fact that we don't have to replace a dated product.
This is not even [DCF DE]. When we went [DCF DE], we actually had to change products.
Right.
Files. In the first three versions, it was hard to move files from DCF DE. We're not going to have that problem. We have a very good architecture. We have a lot of products to sell. We've already solved the infrastructure complexity with AOD, and we're carrying that team forward. Part of the reason we're going to share that with you is we think the economics are going to be good. We've always been an execution company, one that delivers and I'm looking at Angelo. I don't think we'll pinpoint that date, I doubt, but we'll probably show you a path that you're going to really like.
Okay. Just a question, following up on your Altus Connect conference. Wondering what the feedback was from your customers that you've spoken with regarding some of the functionality that you're going to start offering them in the cloud, in particular, the benchmarking tools that you're going to provide to them. Seems as though those are things that they can't really do right now, curious as to what the reaction was on those items.
This is Carl, Maggie. It was great. I have to tell you that it was customers who pushed us in that direction a while back and said, "Hey, when you get in this environment here, the things we would love to do." We used a lot of customer comments to start this down that path.
At the conference, we mentioned that the April release came out, which was the benchmarking. We have another product called Compare coming out in July. Creating comparisons across the different models. Then we put the potential of four other products, that we're going to develop during the year, and we ask customer input on those four products. We'll probably get two of those products delivered in 2019. We're trying to be a lot more transparent with our customers. We're trying to gauge their interest in what we're delivering because it's a short, very rapid cycles of development. We're able to take a lot more of an agile approach and involve customers in what we're doing next. My impression and the feedback I got, and Bob can answer it as well, very positive, very different approach. They're not waiting a year for functionality.
We're a lot more agile and reacting to some of the things that they wanted us to fix over a period of time. Cloud infrastructure just allows you to get things, certainly the data in one place, and do a lot more with the data than we've been historically able to do.
Okay. One final question for me, and it's with regards to U.K. property tax. Recall when you bought CVS, the initial early goal was to sort of keep all the teams intact and try to get as much market share as possible. Then you did some restructuring, I believe, after a period of chasing down sales opportunities. We've had this process change that's sort of impaired near term, the value that we've seen come out of property tax. I'm wondering where you may have the pickup in annuities and then build in your contingencies in the U.K. If you would expect to realize not only the economic value of your pipeline, but also the benefit of those early efforts on picking up market share and then taking out some cost.
Hi, Maggie. This is Angelo. We have actually, through our integration process a year ago, maintained the best of both companies. Quite frankly, it was a very successful integration. We did actually achieve some synergies
-in more of the back office areas. We achieved some synergies just in terms of how we went to market through business development, marketing. We did leverage some of the cost base, if you will. We kept our surveying teams intact. Our aspiration is to grow the market share beyond what we had done individually. We're on track to, at a minimum, achieve the kind of volumes that we would have done individually, if you just combined it. We're actually still bringing on new clients. We're still increasing the number of appeals we have in the pipeline. I wouldn't call what we've seen over the course of the last year to year and a half as an impairment, because that would suggest that we've lost value, and we've not actually lost value. It's a timing element here.
Okay.
The value in the pipeline is there, and it's growing.
Contingency fees.
The contingency, absolutely. Thanks, Bob. What we've been able to do by combining the businesses is actually increase our contingency fees. Again, that was one of the areas where we brought together the best of two sides, and pricing was actually one of them. We used to go to market, and we were both near the top in terms of market share by volume, and so we were sort of natural competitors and beating ourselves up. There's just a bit of a synergy there. We have actually taken up the average value per appeal as a result of that.
Right. Sorry, one more question. Have you seen any instances where competitors in the U.K. have not been able to manage the process change very well, and that may be providing you with some opportunity either to gain share or perhaps find some M&A opportunities?
I'd say that definitely we're ahead of the curve in terms of what we're seeing with the industry in terms of the number of appeals that they register, that they're settling. We've been going hard. The industry seems to be behind. We don't know if they're not building pipeline at this point, because obviously we don't have visibility to their internal databases. From what we can see publicly, they're behind where they would've been at this point in the last cycle. In terms of opportunities, we're still very optimistic about growing market share, whether it's organically, which we're doing, and through acquisition. We haven't closed the door on acquisition opportunities. We're still very keen on it.
Okay, great. Thanks a lot.
Okay.
Thank you. The next question is from Stephen MacLeod of BMO Capital Markets. Please proceed.
Yeah. Okay, great. Thank you. Good evening. I know we're sort of past the hour here. I just wanted to squeeze in one last question. Lots of good color so far. Just in terms of data, Carl, you mentioned that the cloud infrastructure will allow you to do a lot more with data than you have been previously able to do. Can you just elaborate a little bit on what cloud gives you specifically around data and the opportunity to sort of monetize that versus the current infrastructure?
Yeah. If you look at the current infrastructure, all the data files are on-premise with our clients, right? Us having access to that data is a very different problem. As we give clients the ability now to publish that data into the cloud, to use the functionality of the cloud, we get access to the data with their permission. Well, let's take a step back. We get access to the data, they get access to the data as well. We're providing an environment where they can bring single instances of their own data to one place. Also, with the release coming out in July, we can support multiple instances to our larger clients who have 10 instances, 20 instances of ARGUS Enterprise, can all publish the models into one place, and they can start doing benchmarking, reporting on a global or an enterprise basis across those models.
It brings that seamless integration for the client into one place. There's one data model in play there inside the cloud, as opposed to various data models on-premise. In the future, as I mentioned, it connects with client authorization. Now we can start doing aggregation and peering in the cloud. Our clients are very interested in understanding how they perform to the industry, to different asset types, geos, and things like that. They're much more willing to share the data to be anonymized and aggregated, and we see that as a huge benefit for our smaller clients and also our larger clients. The technology of the cloud just simplifies that whole approach.
Right. Okay. That makes perfect sense.
Stephen, if I build on that just for a second.
Remember what the calculation engine does, it actually deals with asset classes. It deals now with currency. It deals with the complexity of valuation uniqueness. It collects over 300 data points. It allows you to actually start imagining how you could collect data once
For a purpose like valuation, but then through the cloud, and APIs, release that into workflows, into other data repositories like Voyanta, into capabilities like data exchange. For the customer, we've had a number of customers that have brought ARGUS Enterprise to bring that data back in a standard format into their repositories, to then again, give it to their investors or to commingle it with property data or sorry, partners like property managers, they start collecting this data. All of this sets up in a very interesting ecosystem where we have the most number of customers, we have the most number of industries served, now the most geographies. Very quickly, we're thinking of our platform not just as a global valuation capability, but as a global data platform.
Right. Do you think that ability with data and giving clients and customers the ability to benchmark and compare themselves, is that one of the pull features that you're talking about?
Yeah, absolutely. Again, we pivoted very quickly once we understood how important it was for clients to see across their own models inside a single instance of Argus or multiple instances. Everyone's looking for consistency of how they're doing their work, benchmarking across different valuers and outside firms they're using. It was a key requirement which we were able to fulfill very quickly. Then, as Bob says, we can take that now to the limit. We can just keep going with this concept.
Right. Okay, that's great. Thank you.
Okay. Thanks, Steve.
Thank you. There are no further question registered at this time. I would now like to return the meeting back over to Mr. Courteau.
A number of these people that are on the call were at Altus Connect. You listened to me talk at our annual general meeting on Tuesday. You're back today. We're so happy that you're so interested in our company. Although I must say, you must be getting tired of me by now. Look, if you couldn't tell by the messaging you should have got from the tone, we remain ambitious, excited, and feel very comfortable about the transition that we're in as we become a company that is modern, global, and will deliver information at scale to our clients. Thanks for joining.
Thanks, everyone. We look forward to connecting again in June.
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. We thank you for your participation and ask that you please disconnect your lines.