Good afternoon, ladies and gentlemen. Welcome to the Altus Group's Investor Update conference call. During the presentation, all participants will be in listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the meeting over to Ms. Camilla Bartosiewicz . Please go ahead.
Thank you, Eric. Good afternoon, everyone, and thank you for joining us on this Investor Update conference call and live webcast on June 26, 2019. As mentioned on our last earnings call, we wanted to host this event to provide an update on our Altus Analytics operations as there's a change to our go-to-market strategy commencing in July that coincides with the release of our updated ARGUS Cloud product, which has been updated with new functionality and now offers clients a cloud-only deployment and multi-instance support of our ARGUS Enterprise flagship software product. As planned, our Altus Analytics business is shifting towards a recurring revenue model and transitioning more towards subscription-based revenues and cloud deployment of our software products.
As our plan rolls out, we wanted to take the opportunity to provide our analysts and investors with an update on how this impacts our operating and financial model during this transition. For reference, a press release related to the material disclosures that will be made on this call was just issued over the wire and is also posted on our website, along with accompanying slide presentation we will reference on the call through the live webcast. Please visit altusgroup.com to obtain these documents and for more information. Joining us today is Robert Courteau, Chief Executive Officer, Carl Farrell, President, Angelo Bartolini, Chief Financial Officer, and Gordon Richardson, Executive Vice President of Finance.
We blocked off two hours for this call to provide you with an increased level of detail about how we are successfully executing on our plan, starting with some prepared remarks, and then we'll have plenty of time to take questions from analysts and institutional investors. If we miss anyone, please contact me directly after the call. My email address is listed in the press release. Before we get started, please be advised that some of our statements today may contain forward-looking information. Various factors and assumptions were applied or taken into consideration in arriving at the forward-looking information that do not take into account the facts of events announced today. There are also numerous risks and uncertainties that could cause actual results to differ materially from those set out or implied by such statements. They are described in our company's filings with SEDAR.
Of course, you can also review the disclaimer on slide number two here of our presentation, or three. Our comments and answers to any questions must also be considered in the context of those disclosures. Please be reminded that Altus Group uses certain non-GAAP, non-IFRS measures as indicators of financial and operational performance. We urge a caution that they are not defined performance measures under IFRS and may differ from similar computations as reported by other similar entities, and accordingly, may not be comparable to financial measures as reported by those entities. We believe that these measures are useful supplemental measures that may assist investors in assessing an investment in our shares and provide more insight into our performance. Lastly, just wanted to point out that all of our dollar references are in CAD unless otherwise specified.
I will now turn the call over to Bob.
Thank you, Camilla , good afternoon, everyone. Let me start off today by reiterating our value proposition. Altus Group is a global market leader in the commercial real estate industry, offering value-added software, data, and consulting services that enable our customers to maximize the value of their real estate assets and investments. Our mission, critical software, and data analytics solutions are integral to our global asset and investment management clients who have solidified some of our capabilities as market standards. The growth opportunities ahead for our Altus Analytics business are substantial, both with existing customers and in new markets. As commercial real estate investments continue to become more institutionalized, our CRE consulting businesses are market leaders in the core practice areas, generating stable cash flows as they grow and enabling us to serve all market participants involved in the value chain of commercial real estate assets.
Both of our divisions generate data to support our competitive advantages over time. Our longstanding goal is to grow the value of our business and provide shareholders with outstanding returns driven by strong operational performance, prudent capital allocation, and by optimizing our assets to generate strong long-term returns. Our strategy to reach this goal has been in place for several years, and transitioning our Altus Analytics business to a predominantly recurring revenue model, as enabled by the transition to cloud subscriptions, is an important step and supports our long-term growth ambitions. For several years now, we have moved towards a higher mix of recurring revenues at Altus Analytics, achieving a 16% Three year annual compounded growth rate to 2018 and growing our recurring revenue base to over 70% of total Altus Analytics revenues today.
With a strong cloud product in the market and an increasingly higher mix of ARGUS contracts being done on subscription terms versus perpetual. We've reached an important milestone in our plan where we can start to transition our ARGUS model to subscription contracts and cloud deployment to ultimately achieve a higher mix of over time recurring revenues. As you'll hear today, our target is to achieve over 90% of recurring revenues by 2021. As part of that strategy, we are making several major strategic change to our Altus Analytics go-to-market model to increase our long-term revenue growth potential, increase recurring revenues, and to develop a high-growth, high-margin business with predictable revenues, which we expect will create higher economic value for the company, and by extension, to our shareholders.
This will have a modest impact to near-term financial performance, which Angelo will further discuss later in the call, but will come out of the transition with an improved growth profile. We intend to achieve these targets by migrating our on-premise software customers to the cloud and moving our software contracts to over time subscriptions. Over the next two quarters, we will run programs to incentivize customers to drive cloud adoption. Starting in July, we are moving forward with the soft launch of moving our customer base to the cloud on subscription terms. At first, impacting net new customers, and in due course, migrating our current on-premise customers to adopt the cloud. In 2020, we expect a high majority of our new sales will be of a subscription license variety.
Unlike some of our software peers, many of whom underwent a perpetual to subscription transition on the majority of their revenues and saw a big dip in their financial performance, we expect the impact on our revenues to be modest, as we've already established plus 70% recurring revenue base, and therefore expect to sustain year-over-year revenue growth during the transition. This is aided by our other strong and growing offerings in our Altus Analytics suite. Equally important, the product investment we have made over the last couple of years will start to normalize as we focus all of our development activity on one core cloud platform. The combination of revenue growth and controlled expenses supports a gradual margin recovery to over 30% by 2023 and gets us back on the path to Rule of 40 performance.
Overall, our objective today is to offer more transparency on the operating and financial implications of this transition and to answer one of the most frequent questions we get from our shareholders. What does this business look like five years out? By which point, we have set a goal to double our revenues. For the benefits of our new shareholders and prospective investors, we'll also spend a few minutes on our growth strategy to bring context to how the transition to cloud subscriptions enables future growth and how it relates to our growth ambitions.
As many of you are aware, at Altus Analytics, we've been operating in a hybrid model for several years now, giving customers the option to buy software licenses on perpetual terms with a 20% maintenance component or on a subscription contract, which for them would be spread out over the term of the contract. With our ARGUS On Demand offering, we've also given customers the options to buy a hosted version of our software. Both have been great proxies for how demand for cloud and subscription pricing has evolved in our industry, having reached a point where customers have a strong preference for cloud software and a growing number of cases, a cloud first policy.
Over the past couple of years, we've observed a strong trend of higher mix of subscription deals for new sales. Our ARGUS On Demand offering has reached approximately 1,000 clients in just a little over three years since being introduced. While this has, to some degree, muted our top line growth over the past couple of years, as those revenues were recognized over time versus upfront, it has contributed to strong recurring revenue growth and will ease our shift to a full subscription model. We have a privileged position in the market with very strong moats around our business. ARGUS Enterprise has been adopted around the world as a critical workflow solution, as a source of truth in commercial real estate transaction, and as the language for our industry. We have successfully reached sufficient critical mass to advance our strategy to the next transition point.
Really, this is just the execution of the plan we had in place when I first joined the company in late 2013. Regarding our timing with the move to subscriptions, this is the next phase of our multi-year strategy. We're moving ahead in July for the following reasons. First, there's real client demand, both for cloud technology and for the type of functionality we've introduced. Plus, cloud technology has reached significant acceptance in our industry. Second, we've reached product readiness. We have a strong cloud product in the market and an integrated stack of solutions for commercial real estate, global asset, and investment management that we expect will drive adoption. Third, there's a compelling economic benefit. We'll elaborate on this throughout the presentation, but this includes higher value contracts, smoother revenue performance, a harmonized development platform, just to name a few.
Of course, there is substantial economic benefit for our customers too. Fourth, we've already made significant headway in our transition to a recurring revenue model and have experience with hosted solutions and subscription selling, which will ease our transition. Fifth, we have high confidence in how this transition will evolve based on both the success of ARGUS On Demand and general client demand. The pull is there. We have no doubt. Sixth, this preemptively positions us to mitigate new competitive threats. Lastly, it provides us with a foundation to go after the very attractive opportunities that we see in data. Overall, per our strategy, the evolution of our model has reached a point whereby we can now be measured on a new set of metrics aligned with companies who have a high majority of recurring revenues.
Not lost on us, with a strong runway ahead for our property tax business and an overall healthy state with balanced growth performance across all of our businesses, the timing gives us a good backdrop for our consolidated performance while we transition Altus Analytics in 2019 and 2020. Before I go any further, let me spend a couple minutes on our strategy and how it has come together over the last several years. We've been at it since 2013. I've often referred to our Altus Analytics Division almost as a startup tech company, about six years old. Yet what the team has accomplished over the past few years is very impressive. This gives me confidence in our ability to execute and significantly de-risk this transition.
With the launch of ARGUS Enterprise in 2013, we embarked on our first key transition that set the ARGUS Enterprise standard globally, migrating our customers from our legacy single asset valuation products to the ARGUS Enterprise portfolio solution while also expanding globally. This is no easy feat, and many lessons were learned enabling us to approach this upcoming transition from a position of strength. As we've added to our stack of CRE asset investment management solutions with new applications and new capabilities, we broadened the use of ARGUS through strong repurchase rates and shifted our selling model from a single product IT sale to a multiproduct global enterprise transaction. In 2018, we invested in our cloud platform and expanded our go-to-market capability, and here we are today at the innovation chapter of our journey.
The next chapter of our transition is centered on migrating our clients to the cloud. As planned, we believe we are well positioned to start unlocking the power of the rich, global, and high value data that resides in our software. Building upon the execution that I just described, our long-term objective for Altus Analytics is to be the global platform for commercial real estate asset investment management, offering high-value software solutions and data analytics capabilities to the marketplace. An industry sector where the demand for technological and data innovation is rapidly accelerating, and we're right at the front of this opportunity. We're going to market with a very comprehensive ARGUS Everywhere plan while leveraging our expanding appraisal management data platform. Which, by the way, continues to be a strong contributor to Altus Analytics growth and has consistently performed well.
Revenues have been steadily growing every year since we acquired this practice, up nearly 130% in the last five years. The ARGUS Everywhere go-to-market plan consists of continue and expand ARGUS through cross-sell and upsell opportunities; expanding into other markets currently focused specifically on Germany, France, and Asia over the near term, where this market opportunity is substantial; increasing our multiproduct enterprise and the integrated offering selling capabilities. This is a particularly attractive opportunity as we can now sell the full stack of capabilities to serve our large and global clients and their broad variety of complex needs. Our appraisal management offering is a key component of this capability as it converges with ARGUS. Now, with our cloud offering, we have new growth avenues while financially benefiting from customers migrating their ARGUS Enterprise software to the cloud.
Overlaying all of these growth avenues, we are focused on our top 200 clients to drive global deployment of ARGUS Enterprise across their global offices. Currently, less than 10 of our top 200 clients have deployed ARGUS Everywhere across the organization. This remains an important opportunity. Currently, as mentioned, approximately 70% of our software sales come from add-on seats and applications, and approximately 30% from net new clients and new geographies. Beyond these growth contributions, we have an opportunity for meaningful growth from large enterprise deals, and the biggest upside here will be from when ARGUS is adopted as the global asset and investment management analytics and data platform of choice for the commercial real estate industry.
This has potential to materially increase our ability to do more large, multimillion-dollar enterprise deals and drive global deployment of ARGUS amongst all of our large clients. That is what we consider the breakout opportunity for our company. This is ultimately the upside to the model that we will share with you today. We have high conviction that moving the industry to a cloud platform will help facilitate this, and now is the time to make that move. The growth opportunity ahead of us is as attractive as ever, and we're pushing hard on all cylinders. With approximately 6,500 software customers today, we continue to expand customer wallet share, and the opportunity to drive higher repurchase rates has strengthened now that we have multiple capabilities to serve this market globally.
With less than 15% of global market penetration today, we have plenty of room for growth and a lot of untapped potential. I lost my train of thought here. Give me a second. Sorry, guys. 65% of our software customers are still in the Americas, yet Europe and Asia Pacific represent nearly 60% of the market. Our recent investments in our product roadmap have opened up these markets for us, including our upcoming release of ARGUS Enterprise with German and French local valuation functionality, which will also be available in the third quarter. The opportunity in data and extending our suite of products to new market verticals is an upside to our model and certainly part of our long-term strategic growth agenda.
We have high confidence in our team's ability to execute our growth strategy and transition to the cloud. If you look back at our operating track record, we've built incredible strong moats across our business and established our Altus Analytics brands to be market leaders and in certain cases, industry standards. The confidence of the industry, as evidenced by our unmatched client base and strong retention rates, speaks to our strong track record of execution. On that note, I'll turn it over to Carl to take you through our go-to-market strategy with our cloud platform and subscription pricing. Carl.
Thank you, Bob. I wanna begin by spending a few moments understanding the key elements of how we are moving to the cloud, which is unique in the industry. Most software vendors who have made the transition to cloud did so by rewriting their existing applications in the cloud. Customers would typically have to re-implement their software applications. That's expensive and time-consuming for the customer. We took a very different approach, which we believe has de-risked this transition. For the approximately 4,000 customers globally who use ARGUS Enterprise today, we wanted to ensure the easiest path forward. We built the ARGUS Cloud platform to connect to our existing on-premise ARGUS Enterprise software. In a matter of minutes, an existing ARGUS Enterprise user can connect to the new cloud environment, publish their portfolios and existing data to the cloud, and continue working on AE models without any re-implementation.
It's simple. There is no technical support required, and users can immediately start getting the benefit that ARGUS Cloud brings. ARGUS Cloud meets current cloud technology standards that drive usability, scalability, and flexibility for the future. We took the hard, hardest step early on and put the ARGUS Enterprise calculation engine in the ARGUS Cloud platform on day one. Line by line, the same as what exists in the on-premise version. This ensures users will receive identical calculations in both environments. We delivered the initial version of ARGUS Cloud platform in November 2018, and since then, we have been adding additional functionality, targeting to do so every 90 to 120 days. We also announced our intention to build new ARGUS applications that utilize ARGUS Cloud, the first being ARGUS Acquire.
With approximately 70% of new software revenue still coming from our existing customer base, the strategy we have adopted is to pull our existing customers into the ARGUS Cloud by providing additional value propositions and functionality while removing the cloud entry barriers customers typically have. In July, we will release the following key features that we believe will really incent our customer base to want to be in the ARGUS Cloud and also be very attractive to new customers. ARGUS Cloud support for multiple ARGUS Enterprise instances. Customers who have multiple on-premise ARGUS Enterprise instances will be able to publish their portfolios to a single centralized cloud database providing enhanced access and visibility of ARGUS Enterprise files across the whole entire organization.
Centrally located models allow users to collaborate more easily across their business and with partners, which simplifies workflow processes and ensures a consistent view of assets throughout their lifecycle. ARGUS Cloud benchmarking and reporting. A new capability that enables ARGUS Enterprise users to get more value out of their ARGUS Enterprise portfolio data through benchmarking and reporting functionalities. It allows customers to utilize comparables and dashboards to efficiently benchmark performance of existing assets and portfolios to support enhanced analysis and effective decision-making. What we are delivering allows long-term customers to bring all their current and historic data with them into the cloud and exposes all the value contained within it through these new features. We envision future functionality will enable benchmarking with third-party data and aggregated ARGUS Enterprise peer data.
Cloud-only deployment of ARGUS Enterprise, which enables customers to reduce or eliminate internal system management and related hardware infrastructure costs by migrating the AE solution and all the data to the ARGUS Cloud, while still supporting full integration with the existing on-premise ARGUS Enterprise instance. Existing customers will be required to buy a subscription to ARGUS Cloud in addition to their current maintenance. We believe this cost is significantly outweighed by the value driven by the functionality within ARGUS Cloud and represents significant savings to them internally on IT infrastructure. This value proposition will continue to increase as we deliver new functionality into the ARGUS Cloud platform throughout 2019 and into 2020. We have set ourselves a goal to move the vast majority of ARGUS Enterprise users to the cloud by the end of 2023.
In addition, we will continue to build new application functionality to sit in ARGUS Cloud, which again, customers would subscribe to. We announced recently that we plan to release an application interface toolkit targeted for the third quarter of this year. This addresses the need for greater integration between other leading industry applications like ARGUS and their own internal systems that our customers use today. It provides for seamless integration of business workflows without data degradation and time loss. The ARGUS API toolkit will allow users to easily configure how ARGUS will interact with other internal and external software and data applications. We know there's real strong demand for this. We also announced integration for ARGUS Asset and Investment Management Solutions, complete product integration between three leading ARGUS solutions: ARGUS Enterprise, ARGUS Taliance, and ARGUS Voyanta, reducing complexity and resulting in unified end-to-end asset and investment management capabilities.
This integration provides the ability to aggregate all investments, structures, assets, and data into a single platform, allowing for real-time analytics, decision-making, and reporting across the organization. This is a huge step for our larger customers as we address more complex business needs for them. We will give them the seamless data integration, reducing many manual steps and eliminating the potential for data degradation. Our roadmaps have contemplated the transition of all ARGUS branded products to the ARGUS Cloud. For example, ARGUS Developer and ARGUS EstateMaster are in the process of becoming a single new cloud application. Our appraisal management Data Exchange and DataBridge products will also become unified within the ARGUS Cloud. The cloud will facilitate our goal to serve the market with a single unified platform solution for global asset and investment management, with ARGUS Cloud at the center of the CRE ecosystem.
As you review what has just been discussed, the benefits to existing customers are substantial and support our outlook for why customers will be pulled in. All new ARGUS Enterprise functionality discussed will only be available in the cloud, combined with the proposition of a very low-cost infrastructure which cloud delivers. These are two very compelling reasons why we believe customers will naturally migrate to our Cloud solution. In addition, we increase market differentiation and value propositions as we look to acquire new customers, both large and small, in existing and new markets, as Bob discussed. The timing of our move to subscription pricing is totally underpinned by the acceleration in our Cloud deliverables. We have been readying the ARGUS sales and support teams for this time through training, certification programs, and new materials to help them drive out the benefits that this new environment brings.
We have reviewed existing sales compensation practices and realigned to industry standard approaches when selling a SaaS product. We will also be redeploying our digital assets to further support these initiatives to ensure our message and position is well understood. We will aggressively begin to market and position ourselves as a cloud-first supplier. Based on some ongoing discussions with clients, we believe the pull to the cloud will be centered on our clients' needs to employ global data standards across their organizations to ultimately drive improved performance. This is a pain point for them right now and a key trend we have observed in the industry. Clients are spending more and more time on their internal data strategies. This is becoming the norm in our industry.
Based on one recent example with a large global service provider who currently uses ARGUS Enterprise in North America and Asia, but not yet in Europe, the data standardization across all their operations is compelling for them and has the potential to be a game changer on how they leverage their own data. Beyond that, it would drive cost reductions, provide them with consistent business processes, more business insights, and overall would support their business agility. Our ARGUS Cloud platform and the promise it holds for what it can be done with data will solve for numerous business challenges. At first, by providing them with a global reporting and benchmarking functionality, and in the future, we'll combine industry data.
For Altus, the cloud gives us a platform to drive new license sales of AE into EMEA on a global ARGUS Cloud contract for this customer with the associated recurring revenues, while providing us the opportunity to sell them additional ARGUS products. The adoption motivations will vary by client type and size, but I hope this illustrates the attractive opportunity ahead of us. Let's dive right now into how we're approaching this transition and how we'll be selling ARGUS Enterprise on a go-forward basis. For net new customers, we will only be selling ARGUS Enterprise on the cloud on subscription terms. This means a customer would subscribe to both ARGUS Cloud and ARGUS Enterprise on a single subscription contract. For existing customers, we'll preserve some flexibility for now for how they can buy additional ARGUS Enterprise licenses as an add-on transaction.
There will come a time when eventually they can only buy additional licenses on cloud subscriptions. Sales teams and customers will be incented to convert existing contracts to full subscription at this time. Our model assumes a high percent of our software revenues will be of a subscription variety at the start of 2020. We expect that in 2020, the large majority of our transactions, whether they are from net new buyers or existing customer add-on sales, will be on subscription terms, and that we'll see existing on-premise users moving to the cloud deployment. For existing customers, there are three aspects to the transition to cloud, and here's how we expect the market will move and how we have modeled our cloud adoption. Existing on-premise contracts will be unaffected, whether they are on subscription or perpetual terms.
They can stay on-premise as they wish, but will have the ability to proactively convert their current licenses to cloud subscription contracts. We expect some will want to do this early on, and similarly, we may have to incentivize over a period of time along the way. As add-on sales move to cloud subscriptions, this will be a catalyst for many customers to start to move to a cloud environment. We expect that as maintenance and on-prem subscription contracts come up for renewal, this will represent an opportunity to move these contracts to cloud subscriptions. Pricing for cloud will reflect the additional value the customer will receive. With respect to our ARGUS On Demand customers, about 1,000 of them, our plan is to effectively seamlessly change their deployment to ARGUS Cloud.
Our stated goal of moving the vast majority of our on-prem customer base to the cloud over the next three years is built into our model assumptions. This is very different than when we first moved the market from DCF to ARGUS Enterprise, driven in part by the seamless end-user experience and migration and the ever-growing capabilities enabled by a cloud platform. Before I move on, I want to reinforce the future data potential that lies ahead for Altus. Data is a key priority for our customers who are increasingly focused more on internal data strategies, I mentioned. Data-driven intelligence is becoming a need to have in CRE asset and investment management, and we are a natural partner to fill this void.
As ARGUS users move their current and historical global data to the cloud, we are able to access and utilize some of the cleanest, most valuable data in the industry. With customer permission, we'll be able to aggregate and utilize this data in many different ways. We're confident that we'll receive high rates of customer permission, given that, to date, 98% of the approximate 1,000 ARGUS On Demand customers have already agreed to do so. In addition, we'll be able to combine this data with other third-party industry data and provide industry insights and analytics that do not exist today. We have preempted this opportunity and developed data aggregation technology to support this opportunity. As relevant amounts of data become available to us, we have the potential to monetize this opportunity as we provide new offerings to our customer base and to the industry.
We already have a strong foothold with data analytics through our appraisal management business, which currently provides data analytics capabilities to over 165 CRE-focused funds covering unique data on over 7,000 institutional properties, primarily in the U.S. While any upside from our ability to monetize data is not in any of the long-term revenue growth assumptions that we'll share with you today, it's certainly a big opportunity that we intend to exploit over the next five years. We are exceptionally well-positioned to become an important data integration and data standard platform for this global CRE industry. Finally, we should spend a few minutes reviewing the benefits cloud technology drives internally for Altus, which we'll see impacting our longer-term financial performance. The speed of development and innovation accelerates for cloud companies. We'll have an environment that is flexible, scalable, and has strong integration capabilities.
As we have discussed previously, our development costs are expected to flatten out as we focus all of our development investment on 1 cloud platform. We have already begun to transition staff off legacy development activities. As we grow the number of cloud users, the cost to deliver that cloud service will have more financial scale. Overall low cost of support for customers, simplifies third-party integration, reduces internal infrastructure costs over time, and as a theme here, provides us a modern and highly efficient access to ARGUS Enterprise data for potential new products and capabilities. Fundamentally, the transition to a cloud subscription model provides us with higher economic volume. As you'll hear Angelo shortly, we'll benefit from higher lifetime contract value as customers continue to renew their subscriptions over multiple years.
We already have a history of very high customer retentions through delivering strong customer value, and the subscription model further supports this. If a customer does not renew their contract, they lose the right to use the software. As Bob mentioned, we'll end up with more predictable revenue and cash flow models with higher transparency. In the event of a market slowdown, subscription revenue offers significantly more financial protection. I'll now turn it over to Angelo to take us through the financial implications in our model.
Thank you, Carl. As you heard Bob describe for us today, we have made significant progress over the last three years against our growth strategy. We have been on a path of modernizing, globalizing, and integrating our software and analytic solutions, which has led us to a dominant market position. Over the past three years, we have achieved over 46% top-line growth while adding thousands of new users to our ARGUS platform with roughly 4,000 AE clients, including 1,000 ARGUS On Demand clients. Our revenue base is solid. Approximately 97% of AE clients renew their maintenance agreements and over 70% of AA's revenue are recurring over time revenues. Our geographic footprint has been expanding as well.
Our revenues into Europe and Asia Pacific have almost doubled. We continue to see global expansion as a significant growth opportunity, as discussed earlier. Having said that, North America still provides ample growth opportunity through new client acquisitions and expanded solution adoptions. Our adjusted EBITDA and adjusted EBITDA margins have been strong as well over this period. We experienced growth of over 37% and an average margin of 26% over the past three years. These have been accomplished in a period where we ramped up our investments in sales and marketing in order to grow and penetrate new markets, and in product development, particularly in developing our cloud products. As I've mentioned, the strength of our revenues is characterized by a high percentage of recurring revenues that has evolved over the past few years as more of our software sales have been subscription-based.
The upcoming move of AE to cloud and a full switch to subscription pricing will only serve to accelerate this shift. By 2021, we estimate that over 90% of our revenues will be recurring. On slide 24, you can see the current makeup of our AA revenues between recurring and non-recurring. In recurring, we have data and appraisal management and over time subscription revenues as measured under IFRS 15 and maintenance. These are the components that make up 70% of revenues. In the non-recurring category, we have perpetual license sales, point-in-time revenue recognition of revenue subscription sales, and services, which comprise mainly of software implementation and training services and due diligence assignments. The perpetual license sales and point-in-time revenues is a category that will be converted to over time revenues upon full adoption and conversion to cloud sales.
Currently, this category represents approximately 20% of total revenues. Given this dynamic and the strength of the recurring revenue base, we expect to see only a marginal impact to revenue growth in the transition period. I will demonstrate this for you in the following slide. The long-term financial picture of AA is compelling. The move to cloud not only provides economic benefits as a result of its recurring subscription revenues, but enables speed to market deployment and new incremental revenue streams. The revenue model we are presenting to you today, however, is a run rate view based on our existing product stack. It assumes a rollout of AE Cloud only to new clients beginning in July, and a cloud pull strategy of our existing clients over the course of the next three years.
Full subscription pricing of all add-on sales to existing clients, however, is expected to begin in 2020. This is an organic model, with the exception of a small financially immaterial acquisition in software services that we expect to close and announce within the next week or so. Pricing increases have not been assumed other than the incremental value of a cloud license sold versus the price of an on-premise subscription license. As indicated, no new products are assumed, nor is any data monetization that could arise from aggregating data within our cloud environment. We are presenting two revenue scenarios, one with a modest 5% growth on new software bookings, along with mid-digit single growth in data and appraisal management, and a higher scenario based on 15% bookings and mid-teen growth in data and appraisal management. Both assume mid 90% software retention rates.
Both of these scenarios also include a smooth rate of adoption to cloud by existing clients over the next three years. You can see that these two scenarios deliver revenues in the range of approximately CAD 340 million-CAD 420 million by 2023. Flexing any of the assumptions I've just mentioned would likely cause a revenue outcome within the blue shaded area, although it is possible to create scenarios outside of this range. I'm certain that many of you would be looking to see the effect of our cloud transition on revenues and revenue growth, particularly in 2019 and 2020, and would be expecting to see a possible decline.
As I pointed out in the previous slide, the mild negative impact of the switch from perpetual to subscription in 2019 and 2020 is muted by the strength of our recurring revenue base. I'm going to quickly discuss the dotted blue line on our chart. We all know that subscription revenues have a greater economic value than a perpetual model over the long term. There is a natural lift in revenues simply as a result of the recurring aspects of the subscription revenues in the subsequent period. The dotted blue line illustrates this dynamic. By holding all other revenue growth flat in our model, we are able to see the stacking effect of our subscription revenues over the period. This natural economic benefit is reflected in our revenue growth curves above.
Looking to the impact on margins of our transition to cloud and subscriptions, we expect to see the greatest impact in 2019 and 2020. The margin range could be between 17%-21% over this period due to the impact on revenues. In 2019 as well, we have the continuing run rate effect of investments in product development made well into late last year. As you know, we have been making these investments over the past two years, but we now believe we are at a leveling point. To illustrate, our development costs increased by 34% in 2017. In 2018, grew by another 29%. In 2019, we expect the growth rate in development costs to slow to 8%.
Looking forward, we expect margins to improve to the mid-20s in 2021 and climb to the high 20s in 2022 before achieving the low to mid-30s in 2023. Finally, we have strong conviction in our growth prospects, as both Bob and Carl have laid out. Given the current opportunities we have around our existing product stack and the enterprise selling and the inherent growth benefits with a move to cloud, we see a doubling of revenues to the CAD 400 million mark by the end of 2023 as a baseline target. This represents approximately a 17% CAGR from our 2018 levels, and again, is based on our existing run rate model. As part of our transition, we plan on providing you with greater visibility as to how we are tracking towards our goals.
In 2020, we plan on introducing four new metrics that will be disclosed in our MD&A, which include overtime revenues consistent with IFRS 15 revenue recognition, cloud adoption rates, software retention rates, and geographic revenues. We will continue to assess whether there are additional metrics that will improve our disclosures and certainly welcome investor input along the way. For 2019, we will continue to provide the recurring revenue metric that measures the subscription contract value ratably over the subscription period. Although I believe this is a solid economic measure of the value of our subscription business, the overtime revenue measure and recurring revenue measure will converge as client adoption and cloud grows in the future. As a result of this transition, we have decided to provide you with a view to our expected full year results for 2019.
Our expectations are to deliver revenues in the range of CAD 197 million-CAD 205 million, representing a 7%-12% top-line growth along with strong recurring revenue growth of 16%-19%. adjusted EBITDA margins in the range of 17%-20%, reflecting the investment impact I discussed a little earlier and of course the impact of the move to subscriptions in the second half. As I mentioned earlier, we are near closing a small tuck-in acquisition which has been included in our forecast. In closing, I would like to mention that we have seen examples of presentations of this fashion that provide some visibility to cash flow implications and insights into capital allocation. In the fall, we are planning to host a full investor day that will include all other Altus business segments.
It will make more sense for us to include these other financial topics at that meeting so that we can provide a consolidated picture. Given also we are nearing the end of the quarter, I would like to mention that we are still calling for a record revenue year in our global property tax practice. We stated on our last call that we would begin to see improvement beginning in Q2 and expect this to happen. We are very excited about our prospects in this business and look forward toward a strong trajectory into 2020. We will provide you with more insights on our Q2 call and then again at our investor day in the fall. With that, I will now turn it over to Bob for his closing remarks.
Thanks, Angelo. As the presentation concludes, I wanted to reiterate that the transition to cloud subscription enhances economic value and increases the long-term growth potential of our Altus Analytics business with a high growth, high margin model and predictable revenues. We expect this will create significant shareholder value by increasing the value of our company. This will also create enormous value to our customers and the commercial real estate industry. Looking five years out, based on our accomplishments to date and where we expect the transition to cloud will take us, we're very excited about where we're headed, so we wanted to share with you what we believe is possible on the other side of this transition. The potential growth curves that we present today point to a very attractive future for Altus Group, but we will push ourselves to do better and exceed our current run rate.
That's what our investors can expect from us as a potential outcome of our transition to cloud, and this is the return of the investments we've been pursuing over the last couple of years. Our path to Rule of 40 performance includes a relatively short transition period and an especially compelling economic benefit to our customers, our company, and our shareholders. In five years, we expect to be a CAD 400 million revenue run rate to double our ARGUS Enterprise customers and add thousands more users to our platform ecosystem. We expect to be in the market with an integrated software data and service delivery model completely on the cloud. Our model would be over 90% recurring revenues. We also expect to be performing with double-digit top line growth with over 30% adjusted EBITDA margins.
On top, we expect to make significant progress in penetrating the world with ARGUS Enterprise, which will of course, be facilitated by the cloud. To establish the ARGUS brand as a global asset and investment management platform, we expect to be well into our data strategy and making strong inroads into new commercial real estate market verticals. This is the breakout opportunity for our company and for our shareholders, we will continue to prioritize the strategic initiatives in this regard. While we're presenting this as an aspirational vision of what's possible, that is what we are going for, we would love for our shareholders to join us on this journey. With that, let's open it up for questions. Operator?
Thank you, Monsieur Courteau. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 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. The first question is from Paul Steep with Scotia Capital. Please go ahead.
Great. Thanks. Bob or Carl, maybe you could talk a little bit about how the sales force is going about being incented to drive clients over the cloud. Secondly, maybe go back and talk about what challenges you've had with AOD since the launch in 2016, recognizing it's not as big a product as this, but what that might have helped inform you in terms of thinking about this transition. Thanks.
Okay. Perhaps I'll start off. This is Carl, Paul. On the sales compensation, and I have Gordon with me here just to keep me honest on the answer on this one. I mean, our traditional compensation model on perpetual contracts really looks at the initial purchase over a one year. With our cloud subscriptions, where we could have multi-year subscription contracts, we're looking at a much broader basis now to compensate the sales organization on those fixed multi-year contracts. We've moved more towards a SaaS compensation model, which is more traditionally in line with the industry. Does that answer that question, Paul?
Sure. I guess the real question underlying it is how much of the margin impact is the incentives for the sales force versus maybe, you know, other investments you're making, whether it be R&D, as you talked about, or is it largely incenting the sales force to drive the move in the next couple of years?
No, we looked at both and, you know, there is a slight increase, I would say, in how we're looking at compensation policies. It's not a major increase. The increase, as we noted, you know, we're gonna finish 2019 with about an 8% increase in product development coming down from, I think it was 29%. As I stated on previous calls, we've worked hard to flatten the development costs now as we got through a lot of the hard work of the cloud transition. Again, most of that cost has gone into the product and marketing side, I would suggest.
Okay.
The AOD experience, and I'll, again, I'll comment, and Bob, you wanna jump on this, because I wasn't here at the beginning of the transition. I think to get to 1,000 customers at scale like we have today means we really figured out how to do DevOps for those who understand cloud environments. That's a full-scale support, operating support for a SaaS environment, from basically processing contracts to enabling customer licenses automatically and then managing the customer environment in a very transparent way internally. We see exactly what customers are doing.
You know, the whole provisioning side we integrated to our Salesforce implementation during 2018 and 2019. We think we've come a long way and learned a lot over that period of time. It's reflected in our subscription rates and the retention rates, I mean. We have still very high 90% retention, which, you know, points to the fact that we're giving great service in this area. I think we've learned some great lessons. I think we have an infrastructure now which is ready to scale again. We know what to do. I think we're much better positioned than a company doing this for the first time.
I'd just add that, you know, the one thing that we're trying to emphasize is, you know, we've been working on this for a number of years. This isn't like the latest important iteration. We've had a number of iterations. When we first went to AOD, it was a pure pull model. Like, we didn't push customers there. We didn't create a economic option that was better for them to go there. That's the first thing that you need to know. Like, we were really trying to create demand and start our hybrid transition with AOD. As Carl talks about it, you know, put the capabilities in our organization to reduce risks.
Equally, that had a big impact on our top line growth and profitability, because for effectively the first year, we didn't make money on AOD. We basically built that infrastructure out, and I think it reflects the long-term nature of how we think about this business and where we're taking it. The pull is there. We've got the expertise to reduce the risk around the transition. The demand is up on cloud in our industry. We've got the solutions now to really execute on this, so we feel pretty good about it.
Great. The final question you sort of touched on it is, and I know you don't wanna get too far into the capital deployment, but where are we in terms of infrastructure? That's one question that's sort of come in while you've been talking here.
Yeah.
You know, in terms of the spend and where you're at in terms of capacity to be able to handle the ramp you've shown in the slides. Thanks.
Yeah. You wanna go first?
Yeah, yeah. I mean, we utilize Amazon Web Services platform, you know, we've transitioned most of our internal infrastructure, even development now to AWS. It scales with us. It is a flexible price performance curve that we have there. The more users we put on AWS, actually, the cheaper it gets in a lot of instances. We moved to AWS very early in our transition here. Even our AOD On Demand, I think, sits in AWS now. As we get there, we have a very predictable, scalable model with our infrastructure costs.
Obviously, all that is built into our modeling.
Thank you.
Thank you. The next question is from Maggie MacDougall with Cormark Securities. Please go ahead.
Hi there.
Hi, Maggie.
Hey, Maggie.
Hi, Maggie.
I was wondering if you could run through how the pricing schedule is gonna work, or perhaps how the conversation will work with a customer with an on-premise solution that wants to add users and then, is also considering moving everything to the cloud. Just trying to understand how the revenue model shifts over the next several quarters as you go about making the transition.
Well, if you understand what we're gonna do, it's we're gonna just really target net new customers in the first pass. The other thing we're gonna try and do over the next couple of quarters is to target some of our largest customers where we will negotiate a transition plan with them to move to cloud. In the case of the net new customers, there's just an incremental cost to get the functionality of cloud that reflects Paul's question around infrastructure, but also the different economic model. We haven't announced pricing to customers, so I'll be reluctant to share too much information around that, but that's the simple idea.
With the biggest customers in the world are already seeing the value of cloud, and over the next couple of quarters, we will try and accelerate some of those relationships, so we go into 2020 in a strong position. With existing customers, basically they pay a net incremental, effectively maintenance fee. There's a natural conversion to a subscription agreement when they do that. It's an incremental cost to go to the cloud environment. Gordon, do you wanna add anything to that?
No, I think that's fair. If they're moving their existing licenses, then as Carl mentioned earlier, there'll be an incremental fee. Obviously any incremental users they want to add in the cloud, then they'll pay the regular sort of subscription rate for those incremental users.
I'll just add that in the revenue model that we're presenting, we've built all those assumptions.
Yeah.
Into during the transition period, so we've got the adoption rates and that reflects the pricing that we ultimately charge those clients. It's all reflected in that revenue model.
Okay, thanks. The other question I had was around, I guess, it's an earlier slide in your presentation, but you have on the top of a three pie chart, upside future opportunities, data monetization, new CRE market verticals. Perhaps getting ahead of myself here, but I'm curious what you may see in the future under that umbrella, and if you're able to sort of elaborate a bit on the kinds of future opportunities you may look to strategize around over the next couple of years.
What we described is a run rate model based on the current revenue trajectory that we enjoy. What we talk about in the top 200 global customers is that we believe that there will be an inflection point in this industry where we have a leadership position around large, fully integrated global asset investment management projects with a global deployment. We think there's an opportunity to actually create an enterprise class out there that creates a fair upside if that ends up being a standard in the industry. You know, new CRE market verticals.
You know, we've already had success, for example, in terms of bringing ARGUS into the banking industry, you know, where we've signed large deals with customers, where they're applying ARGUS to large commercial loans, as an example. The product's not optimized for that. That would be a category where we could go after as a simple example down the road. Data monetization, you know, with thousands of users and, you know, hundreds of thousands of files that get rolled around, there's multiple opportunities in partnerships, directly for customers, not unlike what we do in the valuation management business, where we set up an index, like the NFI-ODCE Index. There's, you know, significant opportunities there. What we tried to do is to put a responsible, reasonable model in place, you know, that reflected the five-year opportunity.
You know, we think that there's, you know, significant opportunity beyond that.
Okay. A final question. Angelo, in your section where you show us a chart with the 5% revenue, sorry, 5% bookings growth, and then also there's a line with the 15% bookings growth. Your 2023 target falls to sort of the high end between those two key assumptions. Can you explain a bit how you arrive at the CAD 400 as being the right number, given your high and low end wouldn't suggest that to be the mean? Just walk us through your sort of thought process there.
Well, we did a bottoms-up analysis in terms of the assumptions, in terms of sales by product. We, you know, we come up with actually an estimate of what we believe to be sort of best case or not best case, but the sort of standard case. Beyond that, all we did with the range is to provide a view bookend between two potential net new bookings targets, which we feel is reasonable. We do feel pretty confident in sort of the base assumption that we have given the visibility that we have with our product roadmap, with our sales opportunities. The 400 represents sort of our baseline target, if that helps.
Okay. Okay, that's helpful. Thank you very much.
Okay.
Thanks.
You're welcome.
Thank you.
Thank you. The next question is from Paul Treiber with RBC Capital Markets. Please go ahead.
Thanks so much, good afternoon. Just, I mean, I'm sure over the last couple of months, you've solicited some soft feedback from customers just regarding this transition. You know, now that you've gone public with it, can you share the feedback from customers? I'm sure there's, you know, in this strategy, there's an element of, you know, carrot and stick. Could you just speak about the feedback in terms of both of those?
I, first of all, this is Carl, the view from the customers, they're used to cloud subscription pricing. Most of our larger customers are cloud-first policy, they're looking for this technology. This is a model they're used to. You know, they're looking for more advantage from the model as they go forward, more value proposition from the model, which we've tried to inherently architect in. They're looking for an easier platform to maintain cost-wise and personnel-wise, you know, we're giving them those advantages. Those are the kind of feedback we were getting. Whether there's a stick involved here, I'm not quite sure. We've got a very large carrot at the moment. We haven't looked at price increases and stuff like that.
We've been fairly reasonable on how we've looked about infrastructure costs and move those things across. You know, we're not looking at any kind of big stick. As I said, initially, we've tried to put the value out there and pull the clients in there at a reasonable rate over three years. I mean, we've stated the vast majority of those 4,000 customers we want in the cloud in three years. We're gonna continue to enhance the value in the cloud base, cloud application and also the new applications on top to bring them in and make sure that we're competitively priced.
You know, maybe a couple of things I'd add to that are that we've already got proof cases with customers out there that have moved ARGUS Enterprise to a global model. Part of their orientation is to have a global data standard. They are using products that are inferior to what we're talking about here to bring that data back in a sustainable way. The feedback from those clients is that they get the power of how cloud with ARGUS can really open up the door to bringing data back against workflows, against personas, in a way that they can combine it with other data points. Those companies that we're talking about as well are the ones that I would consider the largest, best brands, most innovative.
They're looking at taking advantage of this technology in a way that we think will create tech envy, and the rest of the industry will follow. The other thing that's happened, and this was particularly pertinent at Realcomm, is the landscape of software players and data players out there are clamoring to figure out how to partner with us to present their data, to take our data. That is a reflection of the potential possibilities for making, you know, the industry data live. So I think on both cases, some the most progressive companies get it, already started to deploy it, and the opportunity to partner and create value in the industry is high.
I see, you know, the value for the largest customers. What about the smaller mom and pops? You know, how do you think they would react to the cloud and the value that they would receive with the cloud?
They're the ones that have gone on AOD. They love being a zero infrastructure company. They love getting access to technology. The idea of being able to take data from a third-party data provider right beside ARGUS data and commingle that like the big guys do is something that.
Yeah.
We see all companies try to get their act together on. Like, this whole, I don't need to have a data product in the market to benefit from the growing trend to wanna take data.
Yeah.
We can get paid on software in the short term. We know that, by putting ARGUS Enterprise in the cloud, it evens the playing field even for those smaller companies.
They get tremendous value from the features we're releasing in July, the small companies as well. I mean, typically, historically, our larger customers have put a lot of investment into writing these things themselves, around their ARGUS Enterprise software. We're able to provide this to our very small customers now. They go in for a subscription, they're getting the same level of function. We think we're gonna have great adoption again at that level.
I, you know, like, a lot of this stuff is taking the information back to report on performance, whether it's to an investor, to a board, to the management team, right? That problem or opportunity carries up and down in the market. I think it's also, you know, the other community that we've had a lot of conversations with is the large service providers. We have an opportunity with them to make ARGUS integral to their data strategies, but also even accelerate the global rollout for them and for ARGUS as a data standard around the world.
Just, you know, one last one. Just, you know, you are talking about keeping the premise available for the next couple quarters. You know, you do expect some of this existing customers to still buy on-premise. Would you expect, I guess based on the outlook, you don't expect a flurry of on-premise orders while it's still available? Just why do you think that's the case?
We're not, we may end up with a customer bias to trying to buy a bunch of on-premise software at the end of the year. We will, of course, take those orders. At the same time, we're going to use this to start transitioning them to subscription. You know, we can't, you know how the determination of economic value will be in the eyes of the spender. We're going to try and influence it. In the short term, we're not Sorry, in the long term, we're not taking on-premise software away from our customers. You know, that we are not doing the DCF transition where we're putting a gun to their head. This is way more of a pull model as Carl talked about.
It doesn't mean that at some point we can't get more aggressive in pushing the market. We just are not starting there.
Okay. Thank you for taking my questions.
Thanks.
Thank you. The next question is from Stephen MacLeod with BMO Capital Markets. Please go ahead.
Thank you. Good evening, guys.
Thanks. Hi.
Good evening. Lots of great information in the in the presentation, so thank you. Just a couple things I wanted to clarify. Is there any way to isolate the increased cost to the customer from the conversion, you know, a comparable on-premise to a comparable cloud subscription model?
Angelo, do you?
Well, I think what he's asking is, I think what you're asking, Steve, is really what is the price differential between a on-prem license versus a c loud license.
Yeah cloud license. I mean, from an on-prem, in addition to the, just the price is the whole infrastructure, cost behind that, you know, that the client incurs.
It reflects the infrastructure cost and the added functionality that comes in the July release.
Yeah.
I'm not sure what I'm looking for. It's not dramatic. We think it's reasonable relative to what a customer would pay relative to a maintenance charge. We're not worried about that increase, to be honest, as we looked as I said before, we look at the value proposition we're offering, where there's IT cost reductions, value in the reporting functionalities. We think all of that outweighs the costs which are going in there or the increase in charges which are going in there. You know, without going through the nuts and bolts of how the calculation works.
Yeah. Yeah, no, that, I mean, that generally gets to sort of what I was asking. I guess maybe ask another way, like, what's the alternative for customers that don't necessarily see the value proposition? I guess the alternative is they don't convert, and then they're forced to convert at some point down the road. Is that the way to think about it?
Steve, can you repeat your question?
I'm just thinking of, you know, not all customers would necessarily have the same views around the value proposition. I'm just curious, you know, what the option is for those customers that don't see necessarily the value proposition, if there is one.
They can stay where they are. As we said, we're basically allowing existing contracts to stay in place. As their renewals come up in 2019, 2020, that they continue to renew their on-premise software.
Steve, like net new starting July first, we are gonna give them a subscription solution, including the cloud. That's what we're doing. We also will offer that to customers where they wanna add cloud users, and we will also have an upgrade model in place for customers that wanna start transitioning to the cloud that already are in an ARGUS Enterprise. Each of those have a price associated with them. Part of the reason that we're being a little bit cagey on exactly what those numbers are is that we gotta introduce this to the market in a way that meets the criteria of each of those potential buyers. Look, we threw a lot of information at you here, and we'll have a chance to talk some more here, certainly over the next day or so.
If we have to clarify some of this, we'll make sure that we do that in a fair way.
Yeah. Okay. That's, that's great. I just did have one follow-up. I mean, obviously, data is a very huge value add that cloud functionality makes more readily available. Do the revenue targets that you have in the revenue waterfall reflect monetizing data? Or is the idea that data is one of those things that you get as part of having a subscription solution? I'm just curious, like, is there an incremental monetization opportunity or need when it comes to data? Or is it implicitly in the subscription model?
Well, Stephen, From a modeling standpoint, in terms of what we presented today in our, you know, 2023 target, data monetization is not in that number. You know, we do see the value of it. We will, as the cloud deployment and adoption progresses, you know, we will be able to capture the benefits of having that data and be able to build products around it and provide new opportunities to the marketplace. As it stands now, we have not built any of that benefit into our modeling.
Right.
Just to build on that idea, we didn't talk a lot about this, but we are gonna converge ARGUS in the cloud with Data Exchange and DataBridge, and that extends the capability of our valuation management practice into new categories.
Yeah.
Like REITs, separate funds, even targeted acquisitions where you can take data right into your portfolio planning creates a very big opportunity for valuation management. We believe that our valuation management business is inherently a data business, and we're gonna push on that in its existing model. What Angelo is talking about is that we think there's gonna be abstracts that will allow us to build data capability here in Canada with our Altus data business and generally in the marketplace, in partnerships and/or products that we could bring into the market. We did not factor those into our model. We are trying to build a run rate model based on businesses that we own today or model, you know.
Revenue streams.
Revenue streams that we believe are consistent with the way we're running the business now.
You're right on that there's a lot of opportunity in the future as we gather more global data.
Mm-hmm. Okay. That's great. Thank you.
Thank you. The next question is from Stephanie Price with CIBC World Markets. Please go ahead.
Good afternoon.
Hi, Stephanie.
Hey, Stephanie.
I was hoping you could talk a little bit, about the cloud pipeline at this point. I assume you've been talking to clients ahead of July, and I was just wondering how much visibility you have there and, you know, what that cloud pipeline is made up of. It's existing customers or new customers, et cetera.
Yeah. I mean, as we said, after a point in time in July, all new customers for these products will get a cloud subscription. You know, we have visibility to that pipeline. It's built into the model. We've already started talking, as Bob said, to some of our larger customers about how they may transition, and looked at different ways to help our larger customers transition. We have some visibility to that starting to build. We have not begun, in all reality, to launch our sales programs yet. We will bring focused sales programs to market to get the teams into the customer base, working with more and more of our customers on transition strategies. It is building. We have more visibility, I would suggest, on our newer customers than our existing ones at this point.
Right. The only other thing I'd add is, like, on our larger deals, we are pushing those deals now towards including.
Yeah.
The cloud component.
Yeah.
That naturally takes them away from a, you know, an on-premise, or perpetual, recognition into a over time, recognition scenario. That'll be a really important wildcard for the back end of the year. Going back to the earlier questions, the customers that may want to load up on on-premise licenses versus the customers that see a future in the cloud. In general, we have an opportunity with those large deals to try and influence them more towards subscription. That will be our plan as we go forward.
I also just touch on the fact that we did announce also, you know, integration between Taliance Voyanta and AE as well, which is also driving an enhanced pipeline as we look forward as well.
That makes sense. Thanks. On your target of over 90% recurring revenue by 2021, just wondering if you could talk a bit about the key factors that you think are going to allow you to get to that 90% recurring revenue number?
Starting this year, new clients, as we've said, will be cloud only. That will start to begin to have an effect on our recurring revenue base. As we move into 2020, our plan is to switch from selling perpetual licenses for add-on purposes to subscription-based pricing. Once we've done that, really the only component that's left over remaining will be sales of EstateMaster and Developer that, you know, continue to have will only be on-prem and will continue to have a point-in-time revenue recognition. To the extent that we begin to move our clients onto the cloud, they will switch obviously from that hybrid point-in-time, over time revenue base to completely over time.
Really, the only remaining piece that will be left over once we've done a full cloud conversion will be the services part. The software training, and implementation services and due diligence. That would be the last kind of 10% that it will continue on.
Great. That's helpful. Thank you.
Okay.
Thank you. The next question is from Daniel Chan with TD Securities. Please go ahead.
Hi, guys. In the past, you guys have mentioned that there's a bit of reluctance from the overall industry, the real estate industry, on adopting perpetual licenses. Why are customers now more willing to go with subscription models and the cloud model? Was there something that happened or some sort of catalyst that changed this mindset over the last couple years?
Well, it definitely has. I mean, the advent of all of this PropTech software has created, you know, enthusiasm for the cloud, subscription, I should say, and cloud. The bigger vendors in the market have forced it. MRI already sell subscriptions.
Sales tools.
Yeah.
Those kind of guys.
And also the, you know, the general population of major software companies. You know, we're gonna actually not create an alternative, so we have that going for us. You know, where we have a position in the marketplace where people need the software. As we migrate at a time where there's higher willingness, you know, we're gonna take away the alternative to take a perpetual software solution over time. That's gonna cause the shift, right? Obviously, the risk in that is, you know, potential delay in deals, but we don't see that as a material risk at scale. You know, people have to buy the software.
You know, when you think out into 2020, the net incremental purchase of a number of cloud licenses will start triggering the move of the current maintenance base. Look at AOD is gonna convert. That's a no-brainer. We already got a plan in place. The maintenance converts, it'll get upgraded when they go to a cloud. We're moving net new now, and then we will really only have a subscription offer in the market in 2020. At that point, that's why we're gonna be able to get to 90% of our revenue coming from, you know, subscription revenue pretty quickly here.
Okay, thanks. Then in any kinda transition made, especially around some of these licensing models, there tends to be some customers that go somewhere else. You guys are in a unique situation where your product is pretty much the only one out there. Do you expect to lose any customers during that transition? Like, what kind of numbers do you bake into your model and your forecast?
We have a high 90s retention rate on customers. Amazing retention rate on our AOD platform for a variable platform. I think it reflects what you said, like the importance of our solution in the marketplace. With that, we in our models use conservative estimates of retention. We didn't use the full retention rates as part of our model to make sure that we create a model that obviously is achievable with upside.
Great. Thank you.
Thank you. Once again, please press star one on your telephone keypad if you have a question. The next question is from Kent Crosland with Mackenzie Investments. Please go ahead.
Great. Thanks for taking my question. On the call today, you referenced plans to offer incentives to move existing on-prem customers to the cloud. Can you give some examples of the type of incentives you plan to offer?
Not really at this time. I mean, we haven't basically announced this to our customer base. We will look at the customer programs or the marketing programs we're gonna put in place. You know, we're looking for early adopters. We'll be looking for people to go quickly. We'll probably incentivize a little bit for those people who wanna take their existing perpetual licenses and maintenance contracts and move quickly. With our new customers, you know, we have a standard set of pricing for those. You know, we said over the next three years, we plan to do this in an organized manner. We don't feel we have to get too aggressive based on the value proposition we're putting in front of them, the reduced cost potential they have in certain areas.
A lot of our existing customers really want this functionality. We believe, again, the pull into the cloud is as good as any kind of incentive we can put out there. We will look at some incentives in 2019.
Yeah. I think the only thing I would add to that is that, look, there's some really, really important partners out there, and that's the service providers. Of which, when we moved from DCF to AE, we signed global agreements with a few of the largest ones in the world to help them, you know, deploy ARGUS broadly to serve the largest companies in the world. That's a phenomenon that's going on right now. We believe that there's an opportunity with a few of those companies to do that again, where we would put incentives in place to achieve certain revenue targets around the Cloud. Ergo, you know, discounts for volume to be a partner in the broad use of Cloud inside their own business and for our customers.
Great. Thank you.
Thank you.
Thank you. There are no questions registered at this time. I would now like to turn the meeting over to Mr. Courteau. Please go ahead.
Well, I can tell you this has been something we've been looking forward to. I think it reflects the modernization of our business, our position in the marketplace. It creates new lanes for us to explore, and it creates an opportunity to continue to create that moat, that differentiation in our solution. Appreciate the support that we've had from this community on the phone, and we'll look forward, as Angelo talked about, to giving you more information about our progress and success as we migrate into this new world of subscription and cloud. Thanks for joining.
Thanks, everyone.
Ladies and gentlemen, this concludes today's conference call. Should you have further questions, please contact Camilla Bartosiewicz at Altus Group at 416-641-9773. We thank you for your participation and ask that you please disconnect your lines.