Good afternoon, ladies and gentlemen. Welcome to Altus Group's First Quarter 2018 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 Mr.
Ali Mahdavi. Please go ahead, sir.
Thank you. Good afternoon, everyone, and welcome to Altus Group's Q1 2018 results conference call and webcast for the period ended March 31, 2018. For reference, our earnings news release was issued shortly after the close of market this afternoon and also posted on our website along with our MD and A and financial statements. Please visit altusgroup.com to obtain these documents and for more information. On today's call, we will begin with an overview of our performance during the Q1 of 2018, including a discussion of our financial results and noteworthy developments.
We will finish by taking questions from analysts. If we miss anyone, please contact me directly after the call. Joining us today is our Chief Executive Officer, Bob Courteau and our Chief Financial Officer, Angelo Bartolini. Before we get started, please be advised that some of our statements today may contain forward looking information. Various factors and assumptions were applied or taken into consideration at arriving at the forward looking information that do not take into account the effect of events announced today.
There are also numerous risks and uncertainties that could cause actual results to differ materially from those set out or implied by such statements. These are described in our annual filings on SEDAR. Our comments and answers to any questions must also be considered in the context of the disclosures in those materials. I will now turn the call over to our CFO, Angelo Bartolini, who will start out with a review of our financial performance.
Thank you, Ali, and thank you all for joining us on the call and webcast this afternoon. I'll start off with some highlights of our consolidated financial results, followed by a review by business segment. On the heels of a strong finish in 2017, I am pleased to report that our businesses continue to perform well during the Q1. And despite anticipated variability in some of our business segments, the steady growth in our consolidated results demonstrates the strength of our business model. Our key financial metrics continue to be strong with double digit growth in consolidated revenues and adjusted EBITDA, with consolidated adjusted EBITDA margin remaining consistent on a year over year basis, all while we work through a phase of investments in talent, technology and overall modernization of our expert services.
During the Q1 at Altus Analytics, where we continue to see long term growth opportunities globally for our products as data, analytics and software solutions. We continue to make significant incremental investments in Argus product development activities given the global opportunity available to us. As a result, we realized lower margins during this period of investment. Our CRE consulting practices performed well with a strong contribution from our property tax business. We continue to see significant market share growth opportunities in property tax business in the U.
S. And UK. Lastly, performance of our Geomatics business reflected the ongoing market pressures in the oil and gas sector in Western Canada. I'll now provide a summary of our consolidated results for Q1. Consolidated revenues increased 14.1% to $124,700,000 Acquisitions contributed 4.9% to revenues, while we achieved organic growth revenue of 9.2 percent despite foreign exchange rate movements, which impacted revenues by negative 0.9%.
The strong revenue growth was led by a global property tax practices in our CRE Consulting segment. Our property tax practices in Canada, the U. S. And the U. K.
All showed strong growth and were up 46.4% in aggregate. Altus Analytics grew by 3.2%, inclusive of currency headwinds of 2.7. Percent. Our valuation and cost advisory businesses held steady, while geomatics decreased by 17% on weaker oil and gas drilling activity. Adjusted EBITDA was $15,500,000 for the quarter ended March 31, up 16% or $2,100,000 from $13,400,000 in the same period of 2017.
While organic growth contributed 22.8% to adjusted EBITDA, acquisitions had an expected offsetting impact of 6.8%, an impact we fully expect to reverse in upcoming quarters. Exchange rate movements against the Canadian dollar also adversely impacted adjusted EBITDA by negative 3.4%. Earnings growth in the quarter was led by CRE Consulting, up 120.4%, driven by property tax. Earnings in Altus Analytics declined due to previously mentioned product development expenditures. Consolidated loss in Q1 in accordance with IFRS was negative $2,300,000 compared to a profit of 0 point $6,000,000 in the same period 2017.
Basic EPS was negative 0 point 0 $6 for the quarter versus 0 point 0 $1 positive last year. Adjusted EPS was $0.23 in Q1 compared to $0.22 during the same period last year. Moving on to our performance by business segment. In Q1, our Altus Analytics business revenues increased by 3.2% to $40,500,000 impacted by currency movements of negative 2.7%.
Excluding the
impact of exchange, the growth rate would have been 5.9%. Recurring revenues increased 1.2% or approximately 3.9% without the impact of FX. Overall, the performance in Q1 was driven by license revenues where we saw a double digit increase, consistent with our view of pipeline strength and continued future long term growth opportunities of our products to new and existing clients and significant white space opportunities in Europe and Asia. Recurring revenues increased modestly during the quarter, reflecting the drop off of DCF maintenance fees in Q3 2017 and moderate growth in our recurring revenue streams. For the quarter, adjusted EBITDA declined by 35.5 percent to 8,200,000 expenses as we increased investments and the Argus product roadmap, including cloud functionality and currency headwinds, which had a negative 4.5% impact.
The full run rate of investments in Argus caused lower margins during this quarter. We expect to see a reversal of this impact beginning in Q2 and for the remainder of the year. As our revenues outrun these costs, we expect to return to normalized margins in subsequent quarters. Our CRE consulting revenues increased by 28% to $73,900,000 in Q1. Our property tax business was a strong contributor.
It was up 46.4 percent at $48,600,000 in Q1. During Q1, the Canadian Property Tax practice experienced significant revenue growth in Western Canada, including Vancouver, Alberta and Manitoba. We also had strong revenue contributions across all the tax service lines in the U. S. And UK, including from the recent CVS acquisition.
I should mention that the integration of CVS is going extremely well. Most of our departments are now fully integrated and we have a single go to market strategy. We are achieving significant cost synergies as well as pricing synergies. In addition, we plan to aggressively grow our market share beyond the previously combined 20% share by volume. Although as expected, CDS negatively impacted adjusted EBITDA in this quarter, we expect a reversal of this impact throughout the year as revenues grow and as synergies take hold.
The valuation and cost advisory practices also performed well with revenues up 3% to $25,200,000 in Q1. As a result of the revenue growth, adjusted EBITDA for CRE Consulting increased by 120% to $15,700,000 in Q1. Adjusted EBITDA margin increased to 21.2% compared to 12.3% in 2017. Changes in the exchange rate against the Canadian dollar affected CRE consulting revenues by 0.1% in Q1, while impacting adjusted EBITDA by 1.7%. Finally, at Geomatics, revenues decreased by 17% to $10,400,000 as activity levels remain depressed in oil drilling and gas exploration.
As a result, adjusted EBITDA decreased 96% to 1000000 dollars The challenges in the oil patch in Western Canada are well understood, but a bright spot for the industry is the current price of oil, which could possibly stimulate some activity in the second half of the year.
In
the meantime, we have taken further actions to reduce costs and right size the business as we took a $3,000,000 restructuring charge in the quarter. Corporate costs in Q1 were $8,400,000 dollars compared to $7,700,000 in the same period in 2017. During the quarter, corporate costs increased on higher accrual of variable comp, resulting from increased earnings. As a result, as a percentage of revenues, corporate costs declined to 6.8% from 7.1% in the same period in 2017. At the end of the Q1, Altus Group's balance sheet remained strong, giving the company the financial flexibility to pursue its growth strategy.
The company's bank debt was 163,000,000 dollars representing a funded debt to EBITDA leverage ratio of 1.95 times compared to 1.84 times in December 31, 2017. Also the company's cash and cash equivalents stood at $20,600,000 at the end of the first quarter compared to $28,100,000 as at December 31, 2017. With that, I would now like to turn the call over to Bob. Thanks, Angelo.
We continue to deliver year over year growth in our consolidated key financial metrics, while also making excellent progress against our strategy. I'm really pleased with the performance and our ability to achieve double digit consolidated year over year top line and adjusted EBITDA growth. We had a very productive quarter and I'm also proud of what our team has accomplished. As we look ahead to remainder of the year, we feel really good about the company's growth potential in 2018 and as I said before, even more so as we move forward into 2019. At Altus Analytics, we're making excellent progress against our strategy driving higher sales from existing and new customers, market share gains in new geographies and enhanced value from product improvements.
As you recall, our Q4 2017 numbers have come off a little from a lower trajectory when compared to our normalized quarterly performance as a result of variability to the downside, which comes with the transitioning business. In our case, a transition towards more technology and automation. Despite a modest growth rate of 5.9% net of FX, we continue to see a bit of variability in Q1, while we made strategic investments in talent, technology and our overall platform as we further transition to an information services company. During the quarter, we continue to focus on deepening our solutions and service offerings with existing customers around the globe, while focusing our sales efforts and leveraging our leadership position as the global standard on new and significant growth opportunities. We're tracking well against our objective to take out more than 35 our AE customer base from 3,500 customers to over 8,000.
Historically, our growth has come from the upgrade cycle and the great news is that we are the standard solution now, the standard data solution in Canada, the U. S. And the U. K. This means that we now have a data platform that serves 60% of the global assets managed by the world's leading investment managers.
Many of these clients are now starting to deploy Argus on a global basis, thus representing a significant growth opportunity and very importantly, creating a downward standard or a downward push into all key geographic markets. As well, 150 of the top 235 investment managers have acquired Argus Enterprise and 10 of the top 10 service providers are using Argus globally. Our client base continues to represent a significant opportunity And now with these investments in the cloud, we will make this sea of data available for our clients, their customers and the market broadly. In these markets, this is being accomplished through a number of growth strategies, including going into the markets directly, expanding our pipeline outside of traditional markets and we're dynamically driving a shift to a modernization strategy will also add to the overall pipeline. We continue to focus on increasing wallet share or spend with our existing and new customers for ARGUS Enterprise, upselling new products into our existing base with a variety of use cases ranging from asset valuation and reporting to decision making process in the case of global asset managers.
Another area of ongoing focus for our team is the modernization of our expert services business as we continue to transition Altice into an information services company. We see tremendous value in the power of data that we collect and mine on a variety of fronts. With the ongoing evolution of our technology platform in the cloud and the depth and scale of this data turning into actionable information available to some of the largest industry players, we're building a platform which simply cannot be matched nor avoided by CRE asset managers and owners around the globe. Our emphasis on selling to the small and medium sized business in all markets continues to show good traction as well. Our sales activities to partner are showing results.
And last week, we held our ARGUS user conference. This event was well attended by a wide range of customers across North America, including asset managers, investors and other owners of commercial real estate assets. And this gathering gave us a platform to not only connect with our customers, but also the thought leaders in our industry. Given our market position, the industry looks at us to influence best practices on valuation, analysis, return optimization and asset management. And as evidenced by the key themes from client discussions at the conference, demand for Altus Analytics solutions remains robust.
We are also incrementally investing in our cloud applications. In addition to our still strong Argus Enterprise on premise solutions, these cloud applications can achieve our objectives in attracting new users, improving industry workflows and creating new applications. We expect our first solutions to be released in Q3 and we will target the acquisition workflow with Argus Acquire. We have continuing growth opportunities with Argus Enterprise to expand geographically, to add new functionality and increase client usage. The good news here is that we have a growing pipeline of opportunities with great visibility in this category, which provides us with great confidence of the future.
Based on our current visibility with large global clients, we remain confident in the long term growth prospects of license revenue, which continue to grow in double digits in the Q1. As a result, we will continue to invest in the future growth of our business and particularly in new applications and solutions in the cloud. Our Q1 consolidated results at 14.1 percent top line growth and 16% earnings growth at nearly unchanged margins underpins that Altus Group remains an investment in growth mode, increasing market share with our key offerings and delivering on our strategy, all with one focus, sustainable, profitable, long term growth. We continue to aggressively pursue growth in new and existing markets and customers while making important strategic investments to ensure the long term growth and viability of our platform. As Ansel mentioned in the remarks, Altus Analytics posted modest growth in Q1, and this was accomplished despite currency headwinds during the quarter and our decision to make strategic investments to underpin and accelerate growth.
As most of you are aware, our investments are towards the addition of cloud functionality at Argus, adding talent to support a global expansion and strengthening our ability in onboarding and servicing the largest investors around the world. As I mentioned earlier, we continue to make investments to solidify our market leadership position and the depth and innovation of our solutions. One of the areas we've been working on is the AE platform for the Acrylic Cloud. We have increased significantly investments in our development teams and we'll continue to add resource as we modernize and extend the ARGUS Enterprise on premise platform through AOD and fully into cloud that will allow us to develop new interesting web applications. The early phases of our cloud strategy consist of 1st developing new applications that will be cloud based, but synchronized with AE on premise solutions and the AOD product through application program interfaces and portal functionality.
These new applications will bring new users into the ARGUS Enterprise environment and the web applications will be sold separately on a SaaS basis and should generate new incremental sales to existing customers as well as bringing new customers on the integrated Argus Enterprise platform. Our leading expert services and Altus Analytics businesses collect valuable and detailed CRE industry data, which bodes extremely well as we transition Altus towards becoming a pure play in the information technology services space. This provides us with a unique long term opportunity to utilize and eventually monetize this data to drive differentiation, launch new products and strengthen our recurring revenue streams. We've been laying the groundwork for this opportunity by developing technology that captures and organizes the data that we collect across each of our businesses and through partnerships. In the long term, this infrastructure will enable us to better integrate our current products, to pursue more data sharing partnerships and to leverage the data to develop new applications and data driven products.
Our goal is to use this infrastructure and capability to ultimately launch new products on a global basis. We expect to continue to benefit from growing global demand and favorable trends to increase use of technology and data in the CRE marketplace. Our product offerings stand to serve the growing need of professional asset investment managers for data, analytic tools and software solutions that help them make more timely and informed decisions. In 2018, we expect our software revenues to be driven primarily by growth in new customer sales, especially in Europe and Asia and additional license sales for new users and new modules to our existing customer base for ARGUS Enterprise, ARGUS Developer and ARGUS Estate Master. As the use and adoption of these solutions become more entrenched.
We also expected continued growth in our cloud solutions, Argus On Demand and Voyanta as clients trend towards cloud based technologies. As well in 2018, we expect to see the launch of our first web applications along with the cloud platform enabling a further integrated set of applications on our platform. Turning to the CRE consulting, property tax, valuation and Cost Advisory businesses. They continue to demonstrate market leadership in their respective practices, all delivering top line and adjusted EBITDA performance, resulting in 120% increase in adjusted EBITDA. We are continuing to see ourselves as the market leader in property tax as well as a consolidator.
Property tax continues to represent an attractive growth area for our business, both in the U. S. And the UK and as we modernize in Canada as well. We're a major player in the category. And as you've heard me say in recent months, I'm very excited of what we're doing in this segment.
Our strategy to transition this segment using automation and technology will enable us to integrate this business into our technology platform, resulting in accelerated growth and higher margins in the future, while being recognized as yet another solution offering to our global CRE clients. While we're very bullish on the business itself and our market leadership, quarterly fluctuations as we as a result of the timing of contingency settlements and other factors like varying tax assessment cycles will be a part of this business. However, we expect major growth contribution on a year over year basis and the property tax practice is poised for growth over the next few years. We expect our success here to be driven by both organic growth and strategic tuck in acquisitions. Our organic growth in this category will also continue to be driven as a result of increasing property values, which will inevitably drive our contingency revenues higher as a percentage of value.
Long term, property tax has significant potential for innovation and modernization, and I'm very excited about the opportunity. The valuation and cost advisory practice enjoys significant market share in Canada and as a result continue to grow modestly and we expect moderate growth in near to medium term. Our valuation practice predominantly in Canada continue to benefit from very strong client retention and our cost practice in North America continues to diversify its client and industry focus. And in Asia Pacific, we continue to leverage our global relationships to drive opportunities. Looking ahead, given the leading market share enjoyed by these groups, we expect the data collection potential from these business to be invaluable and support our overall objectives for data growth and our overall long term growth ambitions.
At Geomatics, we remain cautious outlook for our Geomatics business for 2018. Although oil prices have recently improved, This should translate into improved activity levels for oil drilling. Gas prices do remain depressed and as a result, we're seeing lower plant capital expenditures within this segment. Furthermore, pricing pressures in our industry continue to persist. As a result, we took actions to reduce costs in 2018 and we will continue to closely market monitor those market conditions.
In closing, I just want to reiterate that we remain in growth mode. We're energized. We're excited about the new capabilities we're building. We see substantial market opportunity. We have an amazing customer base and we are going to build on our solid track record of execution, which is a significant market advantage.
And quite frankly, we feel like we've only scratched the surface. We believe in our strategy to transform the industry on a global basis, Argus as a global standard for real estate data, data shared in the cloud for the benefit of improved insight and planning and highly relevant analytics that support greater transparency. Our company is positioned to provide a modern platform to the largest companies in the world and give visibility in every important geographic markets. Thanks for your support. Be happy to take questions.
Operator?
Thank you. We will take questions from the telephone lines. Thank you. The first question is from Yuri Lynx of Canaccord Genuity. Please proceed.
Hey, Yuri.
Hey, Angelo. Hey, Bob.
Hi.
Bob, last year, particularly mid year when we had really strong license revenue, you talked a lot about leveraging the 3,003,500 clients and cross selling other modules and taking them into new geographies and stuff like that. So what I guess what happened to that trend? It's definitely fizzled out in at least in the last two quarters. And any color you can provide on the license revenue trend?
We had double digit revenue growth in license revenue this quarter. And if you think about Q4, we had to replace, as I said in the call last quarter, 30% of our revenue and licenses in Q4 of 2016 came from upgrade revenue in the U. S. And we had a pretty actually decent quarter when you take that out. So no, I think we're doing really well.
I mean, we have told you the variability comes from the fact that we got to outrun that 30%, while last year in 2017, we are already making the turn to add new customers, go to Europe in that. So it wasn't just upgrade revenue last year in 2016, 2017. We were doing well in license revenue. That's why we felt pretty good, pretty confident. And going forward, we still feel pretty good about it.
We're not worried about the license revenue as we go forward. We're just worried about comparables.
Yes. In the past, you've talked about kind of a 15% annual growth rate for Altus Analytics as a whole. Is that something you still think is achievable for this year?
Well, what I've talked about this year is the fact that we want to try and drive a plan against strong margins and good growth. And we kind of set out a track there to be around 10% this year as a target for Altus and Alexion revenue and sustain really good margins and invest. And so it's a real transition year. The other headwind on overall growth is you got to remember that we took out our we took down our maintenance revenue as part of the upgrade in the U. S.
To make sure that we move that market. And to your original point, we're now organized to go after the largest customers in the world around cross selling with appraisal management, with Voyant and the other data areas. So look, we're going to we absolutely are going to come through this in a way that our company has a good year and we're positioned for really, really strong growth as we go into 2019. So we got we always said we'd have headwinds this year on comparables, on currency and the like, but we're not giving that up.
Okay. I'll turn it over. Thanks, Bob. Yes.
Thank you very much. The next question is from Paul Gerber of RBC Capital Markets. Please proceed.
Thanks very much. Just want to follow-up on the last question. Just in regards to upgrades, in the past you talked about some of these large upgrades that the deals would be chunked and you'd see upgrades or expansion over time. Just wanted your thoughts on that going forward here?
Yes. I mean, we again, we had growth in the quarter in Argus license. And part of the reason that we think we're going to have larger deals is because we're now targeting the largest companies in the world. We're selling them on global rollouts and we're doing that in new markets like Europe and Asia where people where we're replacing multiple value agent methodologies in different ways of managing their data. So we're still on track around that.
It's part of why we feel pretty good about the year. We've got a really good pipeline going and that's the game plan. And as we go forward, we're going to do that off of foundation where we now have Argus as a platform in Canada, the U. S. And the UK.
That's 60% of the assets that are managed by the world's largest asset managers. So we really believe as we move to the cloud, it even opens up more opportunity to take advantage of that customer base. And as they want to start operating on a global basis, those are the those large players of the customers that are going to take us global. It's our strategy. I mean, we have been, we've had a silo approach and it's worked to upgrade the market, to get into new markets, to reposition our product.
And now we're moving to an integrated model in these new markets where we can sell large enterprise solutions to shift. We're in fight on it, but we like our pipeline.
And looking at the growth for this year and perhaps into next, what do you think is the biggest potential upside to that your outlook? And then what's the potential risk or the challenges that you need to address over the next couple of quarters?
I think the biggest upside to our pipeline is selling large global deals that are integrated with the largest investment managers in the world as we normalize our products across the problem of global investment management. And look, we're if we look at the reason I mentioned the pipeline a few times, we're seeing real interest in an integrated solution and that is going to be great as we go forward. We continue to believe that we're going to see a good chunk of our revenue coming from our customer base just through the normal expansion. I've said before that 30% of our revenue is coming from same customer growth. Half of that is call in revenue where people are adding users and extending capability.
And then finally on the run rate, we've got applications to sell as we go forward. The challenge is to changing your business model, right? We got to execute, we got to get this thing going. And again, we feel okay about it, but we got to prove it out going into the second half of the year and going into 2019. But we're pretty confident that we can control it, get the margins good this year, get decent growth and position ourselves to have these products in the cloud and then that changes the whole paradigm of what this company is about.
And then just one last one for me. At a very high level, in the past, you talked about Altus Analytics meeting or exceeding the rule of 40. With the growth outlook that you have and then the margins this past quarter, I mean, do you still see that as achievable going forward?
When I look at 2019, absolutely then some. And if I look at 2018, that's what we're trying to do.
Okay. Thank you. I'll pass the line.
Thank you. The next question is from Paul Steep of Scotia Capital. Please proceed.
Great. Thanks. Bob, could you talk maybe a little bit about how you position yourself to drive further growth in Europe with the sales force? Maybe some of the changes that either you and Karl thought about in terms of go to market over there? And then I've got one quick follow-up.
Yes. So it's not just Europe. What we were completely focused on up until 2018 was make sure that ARGUS Enterprise was a standard in Canada, the U. S. And the UK.
So the European team was completely preoccupied with making that happen and that's where we have targeted our sales force. Now we have a global account team that is going to that customer base and showing them how ARGUS Enterprise can be a global standard and we will enjoy larger transactions as they start migrating that product on a global basis. We've already had customers starting to do that. Secondly, the large account teams are integrated teams where we're selling not only Argus, but our Altus Analytics solutions in terms of appraisal management, data management, integration with 3rd party applications, where we'll even host those capabilities for them. And so this is a paradigm change away from a departmental selling with Argus to an enterprise selling with our best account managers supported by really, really talented specialists around each of those product areas.
And so that's the big change we made coming into 2018 and we're diverting a lot of resources around that. The third part of it is that we're going to part of the push to the cloud is that we'll be able to absolutely create a platform that allows these customers to manage not only their valuation or their research or their aggregation of data on a global basis using ARGUS Enterprise on premise, but now they'll be able to take that data into their workflows. So that's enterprise selling. That's a big change.
Great. That's helpful. If we switch to expert services for a second, you alluded multiple times in the call about modernization of that those lines of business. You give us a sense of what you're looking to do, the benefits and how we should think maybe about the timing and the investment to maybe get to this new world? Well,
look, tax in the quarter was amazing. We are a company that believes that you can take a business like tax and not only operated in a way where you get great performance through greater share, good operational integrity, really understand how you can create efficiency in the model through normal means, we're showing again this year, this quarter that this is a great business for now and for the future. And then on top of that, in the simple terms, we've implemented salesforce.com through the tax team to start getting control of the data and the information around tax, both for our teams to support customers nationally and frankly on a North American basis and eventually globally, but also to get visibility on performance. We are building solutions that we've already rolled out in parts of Canada that improve the workflow of tax. We are now building capability to take data not only from our tax platform, from other areas to improve the way we do appeals.
And we also will get the repeatability of appeals. So if you have a system that is roughly right 80% for one client and you take it to another client, then you take a bunch of the workout by being able to reuse appeals where you have the ability to bring data indirectly. So there's so much opportunity for modernization. Both in Canada and the U. S, the teams have already started building workflow capabilities and using workflow capabilities that spot opportunities that create goodwill with the customers that really create differentiation against the competition.
And frankly, we're the only company that's doing it. So that's kind of cool too.
Great. Last one for me to not leave Angelo. Angelo, in the quarter property tax margins, could you talk about what drove the outperformance there in the period? Thanks.
Simply revenues, the revenue projection, the revenue growth drove the margins. Look, our costs in any given quarter are pretty fixed and so the incremental drop rate to the bottom line.
Okay. Thanks.
Thank you. The next question is from Richard Tsai of National Bank Financial. Please proceed.
Yes. Thank you. Bob, what do
you think are the biggest gating factors to see a material acceleration in Altus Analytics? I know it was double digit growth, but to get to like the mid teens and 20s, is it sort of the people, the pace of development, customer awareness of the product? What are the big items there to sort of get going?
It's product, it's cloud, it's restructure of our sales force, it's taking advantage of our customer base. It's being adopted as a global solution. All the things we've been doing like getting ready for this. I think once we go to a fully integrated platform, which the cloud is a big driver on that and getting that up and running in 2019. Like we're feeling like we're tracking.
The biggest risk on our model was making sure that we control this upgrade to Argus in those markets. Having done that, we're now going to markets like Germany and France and others where we can absolutely start building a global model, a global platform in those markets. But I think what's going to happen is you'll see a flip with our global account strategy where companies like Blackstone will roll out ARGUS Enterprise globally. And once that happens, it puts a huge downward pressure on those markets to adopt it. And so we're going to have we think we'll have pricing power, we'll have new products with data, we'll have new functionality with the cloud.
So we think 2019, we're getting ready to really turn that corner and have products in the market and 2020 is going to be better in 2019. So we're on that journey. That's where we're going. That's why we're investing. We've got this little debt that we're in right now, but we have incredible conviction of how this thing is going to play out.
Okay. And on that, I guess, with respect to the integrated cloud platform for 2019, So would that be something that we'll see in the early part of the year or kind of back half of the year?
I'm not even counting necessarily that cloud in itself will be a significant product line in 2019. What it will cause people to do is buy more of our existing products and that's going to create lift and the integration of ARGUS Enterprise, ARGUS On Demand and other capabilities where we will lift our ARGUS Enterprise product as a global solution will be big. And because we'll have that data in the cloud along with appraisal management, we're now in Europe fairly strongly with Appraisal Management. We've created inroads in Australasia. And that in itself is evidence of the interest in those type of data platforms.
We're just going to put it all together over this year and through 2019 and do large enterprise deals with the largest companies in the world, while we continue to drive market by market to deal with the nuances of the market. The biggest change is we can we think we can go faster with large customer adoption on a global basis versus going market by market as we do this upgrade.
Okay. And then sort of one last one here. You seem fairly optimistic about the pipeline and with respect to some large prospects. So can you give us a bit of color on the nature of those discussions? Are you fairly early in those discussions, kind of in the middle?
Like where would you be at there?
I got to close some of those deals this year, so we can continue to deliver on our plans for the year and some of them are we're talking to them right now. So, no, seriously, we got to continue to drive our pipeline of customer growth. But yes, we got a few large transactions that we're working in the year that have a nice combination of recurring revenue and upfront revenue. So I don't exactly know how to tell you exactly what that means, but we're trying to close deals now.
Okay. Great.
Not an idea. This is not an idea. This is like we've turned the corner. We've already started targeting certain customers and we want to close deals in the Q1, Q2, Q3 and Q4 as part of our turn.
Okay, sounds great. Thanks.
Okay.
Thank you. The next question is from Maggie MacDougall of Cormark Securities. Please proceed.
Hi, there. I just wanted to ask one question. Sorry, I'm at home. So I just wanted to ask one quick question on the profile for analytics investments for the remainder of the year in terms of magnitude and timing and when we could expect to see the margin profile in analytics sort of gradually get back to maybe where it was last year or the year prior? Thanks.
The magnitude of the investments?
Yes. Yes. Yes,
yes. What I've said, I said it in the QA, but what we're talking about incrementally is 3% on a normalized run rate from last year, 3%, 4%. So if you get your calculator out of our revenue last year, it was about 170,000,000 dollars And by memory, roughly around there. And so that's the magnitude of the incremental investment, of which to get back to normalized margins, I got to sell a bunch of stuff if you do the math. So we're that's what we're thinking is we're carrying that weight on this plus the FX headwinds in 2018.
And we're still trying to figure out how to get to the rule of 40. So go figure. Those may work against us. We might not get there, but we're not we're definitely not giving it up. I tried to I gave some anxiety at the beginning of last year and we outran it.
I'm not doing I'm trying to give you material information, but we're not giving up on it. And that's on top of spending, yes, it's a multimillion dollar investment that's incremental, right? So that means we feel pretty good about our business. So I'd say it, I've said it, I think to a few people, maybe all of you a couple of times. If we didn't feel incredibly confident of where this has taken us and how fast we can get there, maybe we would be a little more Canadian in our approach here and be temper our turn to the cloud, but we feel good about the year 2018 and feel great about how we're going to be able to monetize it.
Maggie, this is Angela. What I'd add is the significant investment for the development has been is baked in now. In terms of additional headcount, it will be sort of just incremental with revenue. So our plan is really as we proceed through the years to scale up our margins back to normalized levels.
Yes. We're like 20% margin in AA in the quarter with a fully loaded investment on modest recurring revenue growth. And we want to pick that up through the year and get back to mid-20s and because we have to get any shot at the rule of 40 on the year, right?
Right, right. Okay. Okay. That's really helpful. Thank you very much.
Thank you. The next question is from Daniel Chan of TD Securities. Please proceed.
Yes, thanks. So this is a couple of quarters of strong property tax performance now. Just wonder if you can give us an update of where the pipeline of cases lie with the Ontario cycle and the UK cycle and whether you expect that they haven't already started trickling and whether you expect more cases to start closing soon?
Well, part of the quarter was like the beauty of having a larger business and great market share. We did really well in, as Angelo said, in BC and Alberta and Western Canada. And particularly BC is a very volatile market that created way better upside than we even forecasted coming into the quarter, the way the assessment season set up and it's front end loaded. So it's a really although we're starting the cycle in Ontario and the UK, we by virtue of how much work we do broadly globally now, you can start seeing contributions broadly, right. And then I don't know exactly how you want to characterize that Angelo, but I think the line he used in his comments were UK is ahead of schedule, it's going well.
We are seeing really good performance. And rather than say that we're away to the races in the UK now, maybe the way I'd like to say it is like we've given you a sign of things to come. So this is really, really positioned nicely. The volume of new instructions and new appeals we're taking out is way ahead of our plans, which speaks well of 2019 and frankly took a bit more cost out. So we got a little bit more than we were then as you know, what we're trying to do in the UK is go for real organic growth.
But we're also going to try and take some cost out as we go along. So it's worked out pretty well. Our forecast hasn't changed. We got a ramp up in the UK and Ontario that we've got to work through. But my guess is that we're ahead of schedule broadly.
And finally, the U. S. Had a really good quarter as well. So the real story last quarter is we got good better than forecast performance broadly.
Okay. So just some clarification on the UK market. With CVS, you mentioned that you're still going for market share growth, but continue to cut costs. So should we expect some of those costs to come out later this year? And how do you expect to continue to grow market share as you cut those costs?
Yes. I'll take it. Yes.
Sure. Go ahead.
Yes, absolutely. We've already started. I mean, you wouldn't have seen any real significant impact in Q1 because they started occurring in Q1. But just really across the board, whether it's back office departments, whether it's on our surveying and our business development, marketing, we're taking the best of the best from the two sides. We are getting those synergies.
So from a cost standpoint, you'll see it. Having said that though, we're not scaling back as much as we could on the business development side. We feel that there is still a lot out there for us to grab and this is the time to do it. So we're going after it. But having said that though, we're at a point right now because both ourselves and CVS had pretty much started before the end of the last cycle in terms of getting new instructions with new clients.
And so we're at a very we're in a very strong position right now and we're continuing to grab market share. It doesn't you don't see it all on day 1. You just see it over the span of the cycle. And as I indicated, just from an EBITDA standpoint, we said that this year was going to be neutral from a CVS standpoint. We still believe that because the front end is a little negative, but we're now it's a continual scale up with the cost synergies, with the pricing synergies that we're getting.
So we're going to see enhanced margins and just overall increased market share. So again, strong pipeline and we're like very excited about
it.
We track we have 6 or 7 leading indicators that we track monthly on CVS. Virtually every one of them is ahead of schedule. But again, take that as a proxy on 2019 and how that's going to how strong we can get because basically what you're going to see is substantial revenue growth and back to normal even better margins. So it feels pretty good.
Sounds good. Thanks.
Thank you. The next question is from Deepak Kaushal of GMP Securities. Please proceed.
Hi, guys. Good evening. Thanks for taking my questions. I've got a couple of minor ones and then maybe 1 or 2 bigger ones. Just Angelo, just really quickly, do you guys disclose the actual license revenue figure, combination of perpetual and subscription?
No, we don't. We don't disclose that.
Okay. Do you have any plans to or?
Well, we've just gone through a little bit of a change in our disclosure given IFRS 15. And when we're disclosing recurring, non recurring, we're still actually disclosing recurring in the body of our MD and
A.
But we don't at this time have any plans on further disclosures. Having said that, we've given some indication in terms of how our Hisense sales performed this quarter.
Yes, we're fussing with that a little bit, Deepak, in context of as you start thinking about bringing cloud products to the market, whether if we flip over and go to a common pricing model, then we may drop or we might break out recurring revenue as part of the sorry, break out more information on recurring revenue, so people get more visibility. But we haven't we're just not there yet.
Got it.
Got it. That makes sense. And then on the subscription side, that still includes some maintenance revenue, right?
On the recurring side?
On the recurring side, yes, on the recurring side.
Yes, it does. It includes subscription and it includes and so what that basically that's recurring apples to apples the way it was reported previously on the same basis. Yes.
We've previously told you that subscription revenue is down because of the DCF migration. Sorry, maintenance revenue. Yes, maintenance revenue.
Okay, got that. Thank you. Appreciate that clarification. So kind of the 2 bigger questions I want to ask, and I don't know how much time you guys have in terms of energy, because it's been a long call. So maybe you could pick one of them or answer them both.
I give you the option because I'm so Canadian.
Triple jeopardy.
So the first question I had, I guess it comes from talking to your customers last week and last year as well. And you guys mentioned this a lot. There's a challenge in terms of integration with ERP systems and integration of some other data sets out there in the industry. How big of an issue is that for you guys? And does your integrated platform solve some of that?
Or does something else solve that? If you want to take that, that's option 1. And option 2 would be, you haven't really talked much about Karl Farrell and he was a big part of your show last week. Maybe just some of the rationale about why bring him from the board on board and what he brings to the table. Is it just Office Analytics you're looking at or broader across
the firm? Your
turn. The first answer is simple. Part of the reason of creating a cloud platform is that's the right place to do industry integration. 1st partner we're talking about doing with is VTS, where we would do native level integration back and forth and build some pretty cool new functionality together. So best place to put API is in the cloud and it's part of the functionality we're going to bring out in the second half of the year for sure.
And then just one other comment on that. It's really kind of fascinating how the large players in the industry, Yardi and MRI talk about this. They're pretty closed in their approach and part of our idea is make it really easy to work with us. And frankly, since we started the upgrade in the UK, they've gone from, gee, we should think about talking to you to please work with us because of our standard in the industry. So we're going to find a way to monetize that problem and we're doing some pretty cool stuff around it.
On Carl, he's too busy to talk about. We've got him so busy that he can't even make it through this call. Look, what's funny is, Carl, we did a this wasn't like a step down off the board. We did a over 12 month search for President of Aldous Group. And what was amazing about that is the quality of candidates that we saw.
We had 4 shortlist candidates, all of which were global executives. Carl is amazing because clearly his analytics background, his detail orientation around development, his focus on modernizing services, which he has helped other companies doing. In terms of a working relationship, it's amazing because we'd already had a well established working relationship. He was like a partner with me on solving some of the big strategic issues on the company. And I'm thinking I might get a little bit of a break when this guy came into the company, but we're both working.
We both filled the jar really fast. And the best way to think about it, he's working on a global strategy to take our technology to 8,000 customers in the cloud. And I'm spending a lot of time on the largest companies in the world on the integrated solution. And there's plenty of work to do on both. So really good synergy, team loves working with them already and we're off and running.
Great. Thank you, guys. I appreciate you taking both of those options and taking all my questions. Have a great evening.
Thanks, Deepak.
Thank you. The next question is from Stephen MacLeod of Limo Capital Markets.
Just wanted to close off with one sort of higher level question here. You talked a lot about the 2018 growth profile and how you expect that to accelerate heading into 2019. When you think about the large enterprise deals that are expected to drive some of the growth 2019, 2020, what's the chance or probability that some of those deals get pulled into 2018 and actually drive that growth expected growth higher?
Yes. So
the growth that we've already talked about, if you come back to 2016, 2017, at the beginning of 2016, we were getting like 50%, 55%, 60% of our growth from the upgrade in North America. By the end of 2016, we had moved that we had grown the business overall and started moving that down to like 30% of the growth and a little bit of spikes in Q2, Q3 where the end of life on Argus Enterprise or DCF finished in the U. S, right? But we've been already down this path. The growth will come the growth for 2018 2019 will continue to come from existing customers, expansion and new functionality, which we're already doing.
It will come from new customers in new markets like Europe and Asia and it will come from these enterprise deals. So the enterprise deals in 2018 will so those other areas I talked about, we expect good growth in both those areas as we go forward, same customer and new customer. And then the large customer deals will be on top of that. And that's the gap that we got to close, get really good at driving and we need to build the product functionality to serve that need on a global basis. So it's we basically are replacing our upgrade revenue with expansion of the other 2 revenue streams plus this global opportunity that's in front of us.
Okay. That's really helpful. I know it's getting And
then the next wave after that is cloud revenue, right, which is going to be should be strong. We also so anyway, we got a good roadmap for 2018, 2019 2020. We got a pretty good plan. Great. Appreciate it.
Thanks, Bob. Thanks, Andrew. Thanks. Appreciate it. Thank you.
Thank you. There are no more questions at this time, sir. You may proceed with your presentation.
My presentation is over. Hey, thanks. Thanks for the questions. We're very excited. The ARGUS Connect conference last week, I had people calling me this week that weren't there, that we're talking to their counterparts and saying, I can't believe I missed it.
You guys are talking growth, you're talking innovation, you're changing the industry, you're bringing new partners in. Look, our team is really, really highly confident about the actions we're taking, the pace we're on and where this takes us. So we appreciate the support of our investors, the analysts. And I always finish by saying, thanks to an amazing team. Our employees are incredible.
So thanks and thanks for joining. Good night.
Thank you. Ladies and gentlemen, this concludes today's conference call. Should you have further questions, please contact Ali Mahdavi at Altus Group at 416-6419-710. We thank you for your participation and ask that you please disconnect your lines.