All participants, please stand by. Your conference is ready to begin. 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 31st, 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&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 first quarter 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, Robert 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 of 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 continued to perform well during the first quarter. 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 first quarter 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 U.K. 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 CAD 124.7 million. Acquisitions contributed 4.9% to revenues, while we achieved organic growth revenue of 9.2%, despite foreign exchange rate movements, which impacted revenues by -0.9%.
The strong revenue growth was led by our 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%. Our valuation and cost advisory businesses held steady, while Geomatics decreased by 17% on weaker oil and gas drilling activity. Adjusted EBITDA was CAD 15.5 million for the quarter ended March 31st, up 16%, or CAD 2.1 million from CAD 13.4 million in the same period in 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 -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 CAD -2.3 million, compared to a profit of CAD 0.6 million in the same period in 2017. Basic EPS was CAD -0.06 for the quarter versus CAD 0.01 positive last year. Adjusted EPS was CAD 0.23 in Q1 compared to CAD 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 CAD 40.5 million, impacted by currency movements of -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% to CAD 8.2 million. The increase was the result of higher expenses as we increased investments in 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 CAD 73.9 million in Q1. Our property tax business was a strong contributor. It was up 46.4% at CAD 48.6 million 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 U.K., 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. We plan to aggressively grow our market share beyond the previously combined 20% share by volume.
As expected, CVS 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 CAD 25.2 million in Q1. As a result of the revenue growth, adjusted EBITDA for CRE consulting increased by 120% to CAD 15.7 million 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 CAD 10.4 million as activity levels remained depressed in oil drilling and gas exploration. As a result, adjusted EBITDA decreased 96% to CAD 0.1 million.
The challenges in the oil patch in Western Canada are well understood. 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 CAD 3 million restructuring charge in the quarter. Corporate costs in Q1 were CAD 8.4 million, compared to CAD 7.7 million in the same period in 2017. During the quarter, corporate costs increased on higher accrual of variable comp, resulting from increased earnings. 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 first quarter, Altus Group's balance sheet remained strong, giving the company the financial flexibility to pursue its growth strategy.
The company's bank debt was CAD 163 million, representing a funded debt to EBITDA leverage ratio of 1.95 times, compared to 1.84 times in December 31, 2017. The company's cash and cash equivalents stood at CAD 20.6 million at the end of the first quarter, compared to CAD 28.1 million as at December 31st, 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. I'm also proud of what our team has accomplished. As we look ahead to the remainder of the year, we feel really good about the company's growth potential in 2018. As I've 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 had 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 a 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 continued 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 our AE customer base from 3,500 customers to over 8,000.
Historically, our growth has come from the upgrade cycle. The great news is that we are 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. 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. 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 Altus 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 segments in all markets continues to show good traction as well. Our sales activities to partner are showing results. 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. 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. As evidenced by the key themes from client discussions at the conference, demand for our 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 licensed revenue, which continued to grow in double digits in the first quarter. 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% top-line growth and 16% earnings growth at nearly unchanged margins underpins that Altus Group remains in investment and 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 Angelo mentioned in the remarks, Altus Analytics posted modest growth in Q1. 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 cloud.
We have increased significantly investments in our development teams and will continue to add resources 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 first developing new applications that will be cloud-based but synchronized with ARGUS Enterprise on-premise solutions and the AOD product through application programming 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 EstateMaster 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 a 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 U.K., 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 at 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 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, continues to grow modestly, and we expect moderate growth in the near to medium term. Our valuation practice, predominantly in Canada, continues 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 businesses 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 planned capital expenditures within this segment. Furthermore, pricing pressures in our industry continue to persist. As a result, we took action to reduce costs in 2018, and we will continue to closely 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. Quite frankly, we feel like we've only scratched the surface. We believe in our strategy to transforming the industry on a global basis. ARGUS as a global standard for real estate 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. I'd be happy to take questions. Operator?
Thank you. We will take questions from the telephone lines. If you have a question and you're using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while the participant register. Thank you for your patience. The first question is from Yuri Lynk of Canaccord Genuity. Please proceed.
Hey, Yuri.
Hey, guys. Hey, Angelo. Hey, Bob.
Hi.
Bob, last year, particularly midyear when we had really strong license revenue, you talked a lot about leveraging the 3,000, 3,500 clients and cross-selling other modules and taking them into new geographies.
Yeah
I guess what happened to that trend? It's definitely fizzled out, at least in the last two quarters. Any color you can provide on the license revenue trend.
We had double-digit revenue growth in license revenue this quarter. 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 2016 came from upgrade revenue in the U.S. We had a pretty, actually, decent quarter, when you take that out. No, I think we're doing really well. We have told you the variability comes from the fact that we got to outrun that 30%, while last year in 2017, we were already making the turn to add new customers, go to Europe and that. 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. 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.
Yeah. 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?
What I've talked about this year is the fact that we want to try and drive a plan that gets strong margins and good growth. We set out a track there to be around 10% this year as a target for Altus Analytics on revenue and sustain really good margins and invest. It's a real transition year. The other headwind on overall growth is, you got to remember that we took down our maintenance revenue as part of the upgrade in the U.S. to make sure that we move that market. To your original point, we're now organized to go after the largest customers in the world, around cross-selling with appraisal management, with Voyanta and the other data areas.
Look, we absolutely are going to come through this in a way that our company has a good year, and we're positioned for a really strong growth as we go into 2019. We always said we'd have headwinds this year on comparables, on currency, and the like. We're not giving that up.
Okay. I'll turn it over. Thanks, Bob.
Yeah.
Thank you very much. The next question is from Paul Treiber of RBC Capital Markets. Please proceed.
Well, thanks very much. I 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.
Yeah. We had growth in the quarter in ARGUS license. 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. We're doing that in new markets like Europe and Asia, where we're replacing multiple valuation methodologies and different ways of managing their data. We're still on track around that. It's part of why we feel pretty good about the year. We got a really good pipeline going. That's the game plan. As we go forward, we're going to do that off a foundation where we now have ARGUS as a platform in Canada, the U.S., and the U.K. That's 60% of the assets that are managed by the world's largest asset managers.
We really believe as we move to the cloud, it even opens up more opportunity to take advantage of that customer base. As they want to start operating on a global basis, those large players are the customers that are going to take us global. It's our strategy. We've had a silo approach. It's worked to upgrade the market, to get into new markets, to reposition our product. Now we're moving to an integrated model in these new markets where we can sell large enterprise solutions. It's a shift. We're in flight on it. We like our pipeline.
Looking at the growth for this year and perhaps into next, what do you think is the biggest potential upside to your outlook? 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. Look, if we look at the reason I mentioned the pipeline a few times, we're seeing real interest in an integrated solution. 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. Then finally, on the run rate, we 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. Again, we feel okay about it. We got to prove it out going into the second half of the year and going into 2019. We're pretty confident that we can get the margins good this year, get decent growth, and position ourselves to have these products in the cloud, then that changes the whole paradigm of what this company is about.
Just one last one for me. Just 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 the margins this past quarter, do you still see that as achievable going forward?
When I look at 2019, absolutely, then some. 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 Steed 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 Carl have thought about in terms of go to market over there, and then I've got one quick follow-up.
Yeah. It's not just Europe. What we were completely focused on up until 2018 was make sure that ARGUS Enterprise was the standard in Canada, the U.S., and the U.K. The European team was completely preoccupied with making that happen, and that's where we had 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 third-party applications, where we'll even host those capabilities for them.
This is a paradigm change away from a departmental selling with ARGUS to an enterprise selling with our best account managers, supported by really talented specialists around each of those product areas. 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 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. 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 on the call about modernization of those lines of business. Could 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 operate it 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. 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. We also will get the repeatability of appeals. 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 work out by being able to reuse appeals where you have the ability to bring data in directly. 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. 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 out. 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, the incremental will drop right to the bottom line.
Okay, thanks.
Thank you. The next question is from Richard Tse 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 the mid-teens and twenties, is it sort of the people, the pace of development, the 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, 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. 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.
Once that happens, it puts a huge downward pressure on those markets to adopt it. We think we'll have pricing power. We'll have new products with data. We'll have new functionality with the cloud. 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 than 2019. We're on that journey. That's where we're going. That's why we're investing. We've got this little dip that we're in right now, but we have incredible conviction of how this thing's going to play out.
Okay. On that, I guess, with respect to the integrated cloud platform for 2019. 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'll cause people to do is buy more of our existing products, and that's going to create lift. 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. 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 think we can go faster with large customer adoption on a global basis versus going market by market as we do this upgrade.
Okay, sort of one last one here. You seem fairly optimistic about the pipeline and with respect to some large prospects. 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? 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. Some of them, we're talking to them right now. No, seriously, we've got to continue to drive our pipeline of customer growth. Yeah, we got a few large transactions that we're working in the year that have a nice combination of recurring revenue and upfront revenue. I don't exactly know how to tell you exactly what that means, but we're trying to close deals now.
Okay, great. Thanks a lot.
This is not an idea. This is like we've turned the corner. We've already started targeting certain customers. We want to close deals in the Q1, Q2, Q3, and Q4 as part of our journey.
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.
No problem.
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 and analytics sort of gradually get back to maybe where it was last year or the year prior. Thanks.
The magnitude of the investment?
Yeah.
Yeah. What I've said, I said it in the QA, what we're talking about incrementally is 3% on a normalized run rate from last year, 3%-4%. If you get your calculator out, our revenue last year was about CAD 170 million, and going by memory, roughly around there. 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.
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.
Right
go figure. Those may work against us. We might not get there, but we're definitely not giving it up. I gave some anxiety at the beginning of last year, we outran it.
Yeah.
I'm trying to give you material information, but we're not giving up on it. That's why on top of spending, it's a multimillion-dollar investment that's incremental, right?
That means we feel pretty good about our business. 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 is taking us and how fast we can get there, maybe we would be a little more Canadian in our approach here and temper our turn to the cloud. We feel good about the year 2018 and feel great about how we're going to be able to monetize it.
Okay.
Maggie, this is Angelo. What I'd add is, the significant investment for the development is baked in now. In terms of additional headcount
Yeah.
It'll be sort of just incremental with revenue.
Yes.
Our plan is really, as we proceed through the years, to scale up our margins back to certain normalized levels.
Yeah. We're like 20% margin in AA in the quarter with a fully loaded investment on modest recurring revenue growth. We want to pick that up through the year and get back to mid-20s, because we have to get any shot at the rule of 40 on the year, right?
Right. Okay.
So.
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. This is a couple of quarters of strong property tax performance now. I just wonder if you can give us an update of where the pipeline of cases lie with the Ontario cycle and the U.K. cycle, and if they haven't already started trickling in, whether you expect more cases to start closing soon.
Part of the quarter was the beauty of having a larger business and great market share. We did really well in, as Angelo said, in B.C. and Alberta and Western Canada. Particularly B.C. 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. Although we're starting the cycle in Ontario and the U.K., by virtue of how much work we do broadly globally now, you can start seeing contributions broadly, right? I don't know exactly how you want to characterize that, Angelo, but I think the line he used in his comments were, U.K. 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 U.K. now, maybe the way I'd like to say it is, we're giving you a sign of things to come. This is really positioned nicely. The volume of new instructions and new appeals we're taking up is way ahead of our plans, which speaks well of 2019 and frankly, took a bit more cost out, we got a little bit more. As you know, what we're trying to do in the U.K. is go for real organic growth. We're also going to try and take some cost out as we go along. It's worked out pretty well. Our forecast hasn't changed. We got to ramp up in the U.K. and Ontario that we've got to work through, but my guess is that we're ahead of schedule broadly.
Finally, the U.S. had a really good quarter as well. The real story last quarter is we got better than forecast performance broadly.
Just some clarification on the U.K. market. With CVS, you mentioned that you're still going for market share growth, but continue to cut costs. Should we expect some of those costs to come out later this year? How do you expect to continue to grow market share as you cut those costs?
I'll take it.
Sure. Go for it.
Absolutely. We're already started. You wouldn't have seen any real significant impact in Q1 because they started occurring in Q1. 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, and we are getting those synergies. 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. We're going after it. 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.
We're in a very strong position right now, and we're continuing to grab market share. You don't see it all on day one. You just see it over the span of the cycle. 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 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. Again, strong pipeline, and we're very excited about it.
We have six or seven leading indicators that we track monthly on CVS. Virtually every one of them is ahead of schedule. Again, take that as a proxy on 2019, and how strong we can get, because basically what you're going to see is substantial revenue growth and back to normal, even better margins. 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 minor ones and then maybe one or two bigger ones. 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. Any plans to, or?
We've just gone through a little bit of a change in our disclosure, given IFRS 15.
Yeah
We're disclosing recurring, non-recurring, we're still actually disclosing recurring in the body of our MD&A.
Yeah.
We don't, at this time, have any plans on further disclosures.
Go ahead.
we've given some indication in terms of how our license sales performed this quarter.
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 more information on recurring revenue so people get more visibility. We're just not there yet.
Got it. That makes sense. Then on the subscription side, that still includes some maintenance revenue, right?
In the recurring revenue?
Sorry, on the recurring side. Yeah, on the recurring side.
Yes, it does.
Yeah.
It includes subscription. Basically, that's recurring apples to apples the way it was reported previously, on the same basis.
Yeah.
Okay.
You know we've previously told you that subscription revenue is down because of the DCF migration.
Oh, sorry, maintenance.
Recurring revenue. Yeah.
Yeah, maintenance revenue.
Yeah. Okay. Got that. Thank you. I appreciate that clarification. Kind of the two 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. Maybe you could pick one of them or answer them both. I give you the option because I'm so Canadian.
Triple jeopardy.
Yeah. The first question I had, I guess it comes from talking to your customers last week and last year as well. 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.
Yeah.
How big of an issue is that for you guys, does your integrated platform solve some of that, or does something else solve that? If you want to take that's option one. Option two would be, you haven't really talked much about Carl Farrell, and he was a big part of your show last week.
Yeah.
Maybe just some of the rationale about why bring him from the board on board, what he brings to the table. Is it just Altus Analytics you're looking at, or broader across the firm? Your choice.
The first answer is simple. Part of the reason of creating a cloud platform is that's the right place to do industry integration. First partner we're talking about dealing with is VTS, where we would do native-level integration back and forth and build some pretty cool new functionality together. Best place to put APIs 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. 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.
Frankly, since we started the upgrade in the U.K., they've gone from, "Gee, we should think about talking to you," to, "Please work with us because of our standard in the industry." 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 got him so busy that he can't even make it to this call. Look, you know what's funny is, Carl. This wasn't like a stepdown off the board. We did an over 12-month search for president of Altus Group. What was amazing about that is the quality of candidates that we saw. We had four shortlist candidates, all of which were global executives. Carl was amazing because, clearly, his analytics background, his detail orientation around development, his focus on modernizing services, which he's 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. 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. 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. Really good synergy. Team loves working with him already, and we're off and running.
Great. Thank you, guys. I appreciate you taking both of those options and taking all my questions.
No problem.
Have a great evening.
Thanks, Deepak.
Thank you. The next question is from Stephen MacLeod of BMO Capital Markets. Please proceed.
Thank you. Good evening, guys.
Hi, Stephen.
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 expected growth higher?
Yeah. The growth that we've already talked about, if you come back to 2016, 2017, at the beginning of 2016, we were getting 50%, 55%, 60% of our growth from the upgrade in North America. By the end of 2016, we had grown the business overall and started moving that down to 30% of the growth, and little bit of spikes in Q2, Q3, where the end of life on ARGUS Enterprise or DCF finished in the U.S. We've been already down this path. The growth for 2018 and 2019 will continue to come from existing customers, expansion, and new functionality, which we're already doing. It'll come from new customers and new markets like Europe and Asia, and it'll come from these enterprise deals. Those other areas I talked about, we expect good growth in both those areas as we go forward, same customer, new customer.
The large customer deals will be on top of that. 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. We basically are replacing our upgrade revenue with expansion of the other two revenue streams, plus this global opportunity that's in front of us.
Okay. That's really helpful. I know it's getting-
The next wave after that is cloud revenue, which should be strong. We got a good roadmap for 2018, 2019, and 2020. We've got a pretty good plan.
Great. Appreciate it. Thanks, Bob. Thanks, Ali.
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 for the questions. We're very excited. The Altus Connect Conference last week. I had people calling me this week that weren't there, that were 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. We appreciate the support from our investors, the analysts, and I always finish by saying thanks to an amazing team. Our employees are incredible. 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 416-641-9710. We thank you for your participation and ask that you please disconnect your lines.