Q3 2019 Earnings Call
All participants please standby your confidence is about to be good.
Good afternoon, ladies and gentlemen, welcome to oldest groups third quarter 2019 financial results Conference call.
During the presentation, all participants will be at listen only mode.
I do this conference is being recorded.
Let's turn the call petroleum is coming up on social its please go ahead.
Thank you Michael Good afternoon, everyone and welcome to up the Scoop the quarterly conference calls.
And whats cats for the period ended September Thirtyth 20 <unk>.
Well represents our earnings results easily was issued after market close this afternoon and it's also posted on our website, along with our interim and DNA and financial statements.
Please visit <unk> dot com for these documents and for more information.
Today's call will begin with an overview of our performance, including a discussion of our financial results the noteworthy developments.
Finished by taking questions from analysts and institutional investors if we miss anyone please call me directly after the public I'll conclude.
Joining us today, Bob Koort co Chief Executive Officer, and Angelo Bartolini, Chief Financial Officer, and we also have called Faro President on the line joining us life from London as he's come either for our annual artist connect European client companies.
Before we get started please be advised that some of my statements. They may contain forward looking for me.
Various factors and assumptions were applied or taken into consideration in arriving at the forward looking information that do not take into account. The fact of events announced today. There are also numerous risks and uncertainties that could cause actual results to differ materially from those set out or implied by such statements. These all described in our filings on.
Theater.
Our responses to questions should also be considered in the context of the disclosure and those materials.
Also please be reminded that all to scoop uses certain non-GAAP non <unk> measures as indicators of our financial and operational performance.
Readers are cautioned that they're not to find performance measures Android for us and they differ.
Similar computation is as reported by other similar entities and accordingly, you may not be comparable to financial measures as reported by those companies.
We believe these measures are useful supplemental measures the may assist investors in assessing the investment in our shares and provide more insight into our performance.
With that I'll now turn it over to Angelo who will start with a review of our financial performance.
Thank you came a lot and thank you all for joining us on the call and webcast. This afternoon, then effort to keep the prepared remarks brief I'll begin with a consolidated financial review of our performance in the third quarter, and then drill into business segment performance.
Overall, we're very pleased with the sustained double digit top line and earnings growth in the third quarter, driven largely by another strong quarter property tax and by robust performance at Opus analytics.
Consolidated revenues grew 14% to 137 million driven primarily by 27% revenue growth a property tax and 14% growth at all just analytics.
Our valuations and cost advisory segment posted a single digit improvement, while Jim addicts was down on a comparative basis.
Consolidated adjusted EBITDA was up 20% to 19.8 million for the quarter, reflecting the strong earnings performance I property tax.
Consolidated profit in accordance with high for US It was 5 million and 13 cents per share basic and 12 cents for sure diluted.
Adjusted earnings per share for the quarter were 30 cents compared to 22 cents last year.
And highlighting our strong cash generation during the quarter cash from operating activities were 23.3 million.
Moving onto the segment review.
I'll just analytics revenues were 50.4 million up sequentially, 7.2% and 14% over last year. The noteworthy drivers were appraisal management solutions, where we continue to see existing customers, adding more assets on our platform you customer wins and growing revenues from international Mark.
Good.
Software services.
Through mainly due to the acquisition of 111 in July this year.
And overall higher certain software revenues as a result of growing subscription and maintenance revenues supported by a resilient, 97% maintenance renewal rates for I guess enterprise.
Acquisition growth represents 5% of the 14% revenue growth in the quarter.
The cloud and subscription pricing strategy, we presented in June is well underway and on track.
Early Q3, you customers to eat can only purchased cloud licenses on a subscription basis.
In addition sales of the state Master developer have also shifted to subscription pricing.
Obviously as we have discussed in June . This shift is currently having an impact on recorded revenues as compared to prior year would most sales were on a perpetual basis.
I'll also point out that starting in January 2020, all software sales will be on subscription basis. That's add on sales of eight on prem licenses to existing customers will also shift to subscription terms.
This change will have a modest impact overall revenues as we had outlined in June but more importantly will be positively contributing on an economic basis to ongoing were recurring revenues.
On recurring revenues for the third quarter Remeasurement of contract values for software subscriptions.
I recognized ratably over the contract term work were up 12% to 38.3 million.
Ill point out that this is a fifth consecutive quarter that are recurring revenues were up into double digits.
I did EBIDTA was 10.4 million for the quarter up for Sun. The margin came in at 21% inline with our expectations as they transition to cloud and subscription pricing began in the quarter.
Product development spend which we saw rising over the course of the past two years in order to build our cloud products has now begun to plot flattened out.
Overall spend should outgrow proportionate with our revenue growth.
As a result margins are expected to remain a consistent levels going into 2020, given the impact of cloud and subscription pricing and begin to rebound in 2020 again as we showed in our June presentation.
For the balance of the or we are on track with the guidance. We have provided we expect revenue growth for the full year in the range of 7% to 12% recurring revenues, 16% to 19% and adjusted EBIDTA margin, 17% to 20%.
Moving onto our CRM consulting revenues.
Segment excuse me revenues rose, 17% to 76.4 million in adjusted EBITDA Rose by 66% to 18 point Sixmillion driven primarily by the continued strength the property tax.
In fact property tax revenues were up 27% to 49.3 million an earnings were up 105% to 14.8 million.
Performance was especially strong in Canada and the UK.
In the UK operations benefited from the continuing settlement of 2017 list cases from a healthy backlog and from a healthy backlog in Canada.
The growth revenues was driven by a rebound in case settlements in Ontario, as well as robust performance in Manitoba and Quebec.
Our outlook for the for the year for property tax remained solid.
We're on track with the expectations of fuel settlements or expectations.
Remains that we will have a gradual pick up in appeal settlements in both Ontario in the UK for the remainder of the year.
Building into 2020.
Also given the backlog up cases, it is expected that a significant number of appeal settlements would likely spillover into the next cycle.
As we've stated previously we continue to expect record revenue year for 20 2019.
Which sets us up very well going into 2020.
Moving onto the other business segments.
Relation and cost advisory performed as expected with solid growth coming from our Canadian dollar Nations practice.
We expect to see steady performance and stable margins as we move forward.
Genetics revenue and earnings were down reflecting the ongoing macro challenges in that space and specifically reduced activity levels.
Nonetheless, the businesses on stable footing, and we are well positioned to remain profitable.
Finally in our corporate division corporate cost trended higher consistent with earlier statements.
They would increase as we continue to scale or business and as a result of higher accruals variable compensation.
At the ended the quarter our balance sheet remains strong. Thanks bank that stood at 146 million representing a funded debt to EBITDA ratio of 1.72 times a notable improvement from Q2 when it was 1.9 times our cat cash position at ended the quarter was 56 million.
As noted in our Mdna, our credit facilities mature at the end of April next year.
Currently in the process of reviewing our credit agreements and expect to negotiate a renewed facility well in advance of maturity and with that I'll now turn it over to Bob Thanks for that somebody Angela Good afternoon, everyone. We're really pleased with the sustained double digit.
Topline and earnings growth in the third quarter.
Now, we're especially pleased with the operational progress.
Q3 was a pivotal transition quarter for office analytics business and we're tracking on plan.
And that property tax in Q3, we're seeing the acceleration of case settlements of Ontario in the UK.
And the rest of the business is performing well so we're moving nicely through the backlog per our expectations.
Let me start with all this analytics.
Overall, we had healthy performance as Q3 was the first quarter of our transition where new subscription pricing came into effect for all new customers for our August Argus software business.
As we discussed at our Investor call early in the summer 2019 is the first phase of our transition to a formal subscription based model for software business.
Our hybrid strategy is intended to be customer friendly and minimize customer disruption.
Unlike past quarters Q3, new customers can only buy on subscription terms.
We continue to allow existing customers to buy conventional perpetual licenses, we started to see a shift were those add on sales are also come in.
On subscription terms, which is a good precursor to 2021, all software sales will be on subscription terms starting in January .
During these two quarters of the first phase.
Q3 in Q4.
We have a few things that we're trying to accomplish.
Initiation of the transition of clients to the cloud.
Operationalization of our cloud infrastructure.
Conditioning, all of our clients and the new pricing model and building our cloud customer that subscription backlog for 2020.
We're making very good progress against all four of these initiatives and the cloud pipeline for 2020 is building nicely, including a good mix of volume from smaller size transactions and some larger deals that are planted take advantage of what Argus on the cloud offers.
Client interest in Argus enterprise in the cloud is solid and the conversations arrive with clients validates our view that it's a question of when not if clients recognize the value and we're really not getting any pushback.
In fact, the market is moving towards subscription pricing and cloud licensing. So this move is not surprising to them as their CNN from other vendors as well.
Having just launched the first cloud enabled version of Argus Enterprise three months ago, we're very encouraged by the feedback and experience from the numerous clients who are now on our cloud platform.
Consistent with our plans for the phase of this transition.
Early adopters of in largely from the small and medium business size client base.
Which we refer to as SMB.
And comprised of both net new customers, but also numerous existing clients, who proactively wanted to migrate over.
Recall that we have a very focused approach this year by segmenting our customer base.
Leading with migrating some of our current smaller customers.
That being said, we're also enjoying very positive engagement with the larger more influential firms, who will drive helped drive adoption through the ecosystem.
But also have more complex environments.
And longer sales cycles.
They do get the value.
The drivers for cloud adoption of interestingly been based more on the value proposition of the cloud.
Primarily on having a centralized database that can access from any computer.
With the cost savings related to reduce IP infrastructure simply.
Positive outcome for all of our clients.
Without a doubt.
Everyone sees the strategic value the importance of running their operations on the cloud and our clients are seen value from the enhanced investment.
Visibility through more extensive collaboration across redeemed.
Better utilization of their data.
Even more simply theres a needs with the ability to be able to access all of Uri files from any computer, which enriches data access.
We usability sharing and the contribution of data.
Your company's workflows and to the industry workflows.
Some early examples.
One is an existing customer.
Proactively manage wanted to migrate to the cloud.
A new York based asset management from with approximately 25 users.
The primary reasons to remove the cloud we're a more efficient deployment.
Data collaboration with their team and elimination of allocated server space and software management. This is a very short sales cycle. Once they saw the compelling value Vargas cloud.
Another example.
Revenue for the West coast, the customer that is net new to Argas.
Although the team as used Argus previously in their career.
We recently bought several license on a multi year contract.
This particular company has a cloud only strategy and they represent the new generation of firms who are forward thinking and how they operate and who see value in cloud software a centralized database access to their data and the ability to access this data from any compete.
Peter.
With the majority of our transactions have been in the SMB space and are relatively small in dollar terms a number of users roughly one third have been multi year deals as customer aim to lock in current pricing and make a long term commitment to the platform.
Im pretty cool geographically these transactions have been from all over the world.
Primarily of course from the US, but also extend into other markets in the world, including Singapore, Germany, Australia, South America, Ireland and the UK.
Argus is a truly global solution.
Our expectation on sort of larger organizations for the plan we presented in June our they will start the is that they will start to move to the cloud over environment overtime as those transactions are more complex and there are more considerations on the right he needs.
But for the larger organizations being on the cloud and being able to leverage all of their data is an absolute strategic priority and based on the conversations we're having with our largest client there's solid interest and intra and will to move.
With many customers already operating a cloud only strategy.
We have some sizable deals in the pipeline.
And we feel confident the migration of our existing customer base will accelerate in 2020.
Further we expect today's announcement of with the launch of the CPI tool kit.
We will be a big incentive in the consideration and I'll give you a little bit about above that in the second.
Overall, I'll, just say that we're tracking per plan.
And we're very encouraged by our results from the third quarter.
Our cloud pipeline to support 2020 is building and we're on track with a plan as one small indicator.
I'll, just say that we added more cloud customers in the first three months since it was launch.
We did in the first year of Argus on demand.
We fed take up from new clients, but also many migrations from existing clients, who put it to proactively wanted to move over these are good early signs.
Operationally.
Carl can elaborate further during the Q and a session.
But we're also in good shape Salesforce is ready marketing and product development teams are gearing.
And we gained some good experience during the quarter on supporting our cloud customers by way of our own migration to cloud through our services businesses, including appraisal management and the valuation groups and through our initial cloud customers.
Today's announcement and Argus connect in London.
The CPI product is particularly important one to our customers.
As the global CRM. This industry continues to be challenge with disparate systems, and disjointed workflows, resulting in data complexities.
Argosy CPI will provide greater access to.
Integration of the important CRM data between Argas solutions, and a virus variety of third party sources.
Datasets and applications simply and will allow customers to easily connect Argus enterprise workflows and data their own systems as well. So those two other software systems and third party data.
This will be a standalone product.
And available only to those on the cloud and I. We expect that this will also help facilitate cloud adoption.
Touching briefly on our appraisal management solutions.
As Angelo mention that a very good quarter. This remains an attractive growth opportunity for us and we're making some general enhancements to our data exchange workflow software to include some of the new functionality that we expect will drive both client value and improve our internal workflows.
And also by integrating with Argos cloud and moving all of our internal database to Argos Club you've heard me say this before this offering increasingly converges with our Argus transactions.
So all to say, we're making a great shift to be an enterprise company as defined by global adoption of Argus cloud as a data and valuation standard.
Commitment by our customers to a full stack of solutions.
From valuation to portfolio and funded analysis.
Broadened and overlapping the integration with appraisal management and our data solutions offerings.
Global partnerships with the largest.
CRB service providers.
Differentiated solutions that support the major commercial real estate workflows, and large global transactions, which will lead to Argus as the standard platform for global asset and investment management.
Overall, we feel really good about the next phase of growth for Altice analytics business and our ability to get back on the path to long term steady double digit top line and profitable growth that expanded margins.
Despite some of the short term impact to the transition the cloud subscription business is a better business and I will absolutely fuel to drive towards rule of 40 performance in the future.
And our cloud subscription strategy will help facilitate that.
The market fundamentals remain exceptionally attractive and support our growth inventions, and we're well positioned for the opportunity had especially with our cloud strategy, which allows us to improve the economic value of our contracts.
Couple of comments on CRT consulting.
As Angela covered off property tax had another great quarter revenues are rebounding following a period a case settlement delays the high majority of revenues, which were based on the contingency and therefore directly hitting the bottom line, we're very pleased with 30% margin in the quarter, which speaks to the overall.
Value the business year to date margins are tracking around 33%, we're seeing good sequential improvements.
Cross Oliver different internal metrics and all indications are consistent with our expectations.
I will spend more time in this business at our upcoming investors Investor day.
As you've heard US say before this business has a great growth runway ahead with strong momentum going into 2020.
This also provides us with a good backdrop for consolidated performance, while we transition our office analytics business in 2019 and 2020.
Our other services business costs and valuation advisory Angiomedics are exceptionally well run and stable contributors to our growth and profitability.
So in closing.
I'd just like the really reiterate that we remain in growth more mode. We're energized by the market opportunity ahead of US we have a solid track record of execution.
Significant market differentiation.
Plenty of room for growth and quite frankly, we've only scratched the surface.
And we have innovation in every one of our businesses.
Most importantly, we have the best people in the industry. We proved it again and Carlo talk a little bit about this.
When we get into the queue and A's and Argus connect in London, We had amazing churn out.
Positive client feedback and found ourselves in a place where not only how we put our business in really good place in North America that made it a global business.
As many of you are where we'll be hosting an investor day on December 11th in Toronto, where we look forward to providing with a more detailed view of our operations and additional insights into the key initiatives that will drive value creation.
If you're interested in attended in person please get in touch with Camilla.
With that said, let's open it up for questions. Please.
Certainly sir.
Ladies and gentlemen, we will now take questions from the telephone lines. If you have a question and you are using the speakerphone. Please lift your handset for dialing the selection.
If you have a question you can register by dialing start one on your telephone keypad.
Can cancel the question if you wish for dialing up outside.
Please press Star one if you have a question at this time of the first question is from Yuri Lynk Canaccord Genuity.
Go ahead. Your line is now open.
Hi, Good evening, guys, Hey, Eric Hi, Steve.
Good.
Good for stuff in this transition Bob.
You're obviously positioning yourself to be more embedded in your your clients.
Operations, the CPI rollout is part of that and.
I think theres, a data monetization play there as well any any pushback.
From your clients in terms of there.
Willingness to continue to share their their data and perhaps share more of it with you in the future.
Yes, no I think I think people are.
You know really focused are happy with their approach, which as a customer first approach where they have choice.
And so on cloud.
We believe we'll have great acceptability on data.
And I'll, let Karl jump in here as well on data I think what we've got actually is a bunch of partners and industry players now starting to imagine how we can create really interesting new offerings together and so I would say that of course, there will be some of our competitors out there that has some anxiety but customer.
There is an partners absolutely not I think it's really positive and Karl maybe you can use that as a segue to talk about reaction in London and your thoughts on this.
We announced today, so full house here in London.
Connect us on food one.
Good gave the Sonos key no announcements on the Apiay I was extremely well received.
Into a lot of buzz afterwards lots of conversations.
The ability now to.
Interact with.
Different workflows outflows of the client workflows, bringing all the data together utilizing gate.
This has been asking for this kind of transparency and seamless connection for quite a while to resonate extremely well.
Lots of the conversations.
Into the corner thereafter on the breakout sessions.
His comments on the the call at the question about the data to my knowledge no oil customers about so far anyone's pushback on data aggregation and data sharing which was very similar to our experience.
That's great color.
A clarification on the recurring revenue growth of 12%.
Did did.
111.
Contribute to that 12% or is that inorganic type figure no. That's that's organic and its and its not recurring in nature, Gary 111 did not recur again correct.
Yes, I would call.
Just wanted to double check that.
And then last one from me I'll turn it over Bob any anything on any update on on the M&A outlook in taxes that still you guys still on the.
Yes.
I would say the activity as.
Act up in the us.
And.
You know there's lots of.
Opportunities out there.
And I think more so on the small.
Side right now.
And as part of our strategy to make sure that we we have opportunities there so.
So I would I would guess in 2020 wells, we'll see some activity around that.
I'll turn it over guys. Thanks.
Thank you.
Thank you.
The next question is from Richard Tse at National Bank Financial. Please go ahead. Your line is now open.
Thank you so.
Being pretty aggressive on this shift too.
Which is great.
A question I have is that on a cost side, how should we look about.
Cost going forward and the 2020 because.
It seems like it's going to be a fairly sizable undertaking so should we expect cost.
Stay flat.
Just some color that would be helpful.
Well I think I think consistent with.
What we said have said in the past.
We see the.
Development costs flattening, though.
One new.
Factors, playing with cloud is that.
You actually see cost increase.
With users right. So there is a infant natural infrastructure growth that comes along with that that we would factor and Buddy usually you can do it in a way where it matches the revenue.
And then.
Where are we going to we made a lot of the investments already.
In this transition.
That really.
That already caught caught in our cost base.
Next place, where we'll have some pretty good decisions is is if you were right and as we go out of 2020 into 2021 and this starts to become the standard as we become an enterprise company around large deals.
We could.
Started ramping up our sales force again as we go into 2020, but it should go up with revenue would mean that we have.
Turning the corner and we have established a demand for those type of deals right.
So I.
I think were.
We're.
You know on track for previous guidance, and so would you add anything to that.
Well I agree in fact some of the.
Just to Echo the point on on the sales efforts focus for US is for 2020 is now there the large enterprise.
Platform deals that.
We will combine a number of our solutions together and again, that's so in terms of additional costs with respect to it to delivery.
Sales and marketing that would be sort of proportionate to what we would expect from a revenue increase.
Okay, and clearly you guys about access and converting some of these SMB customers subscription.
The biggest obstacle is going to be for some of your larger enterprise customers as something that.
Signaling to you that.
To address whatever it is before we sort of make that.
Any commentary on that would be helpful as well.
Well.
As to constituencies, there's large service providers that are global.
I would say there were in pretty good conversations with.
A number of the key ones and some of that driven by.
The fact that you know there is going to be demand from customers.
For cloud files, and so not unlike when we first brought out Argus enterprise, we're having similar conversations about how they prepare themselves to do that in and that strategic and important and why it's kind of interesting with that community. Every one of them is also trying to get their data strategy together and we can be an important partner for them.
And then with the.
Larger.
End user customers like our pipeline is really picked up here in the in the last.
Six months and particularly the last quarter.
As we've got out.
And talk into these clients because they see how cloud.
The use of data the other tools that we have our offering.
Can really help their business and and drive.
Some of their digital transformations and finally, the adoption of cloud.
Cloud from an infrastructure perspective is becoming.
It is normal now and so for that reason, we don't see through the pushed back the might have had six seven years ago by doing this so so now it's just about sales execution in my mind, Okay, and just one last one for me.
Following on areas question.
So.
Issuance plans for the growth strategy.
On the tide side, but.
Analytics side.
Nice tuck ins that you're trying to pick ups tech or is it sort of maybe.
Channel.
Any commentary there as well thanks.
We'll always look for tuck ins that are innovative and not unlike what we did with voya into which has a great acquisition and Taleo and telephones.
We're in such an amazing position in the core plus stock or platform right. So they're in a lot of stuff were went by and we're seeing assets trade and people investing in that category, but were good and like there is there's there's nothing out there that we would buy what so a lot of what.
Carl has been doing is focused on adjacent these were talking to interesting data companies.
Now that that's become in core too.
Where we're going to take the business and we've seen some things in the credit markets and debt markets that.
Could be interesting as customers like what you're seeing with the PE firms the banks and.
Some of the core real estate companies.
Is.
We're seeing the a big shift towards.
Sam setting up debt funds and it's the same customer that we support on the equity funds, who are our VA business that are now getting us to deal with debt. So we like that category, we're doing some work around it.
And theres some theres some opportunities there.
Great. Thanks, guys.
Thank you.
The next question is from Maggie Mcdougall Cormark. Please go ahead. Your line is now open.
Hi, Hi, Megan.
And so just wanted to touch on the corporate cost growth.
Said.
Partially due to bonus accruals and then also investment to support growth.
Just wondering if you could.
Perhaps give a little bit of idea in terms of magnitude.
And then.
The nature of the investment.
Hi, Maggie tax level.
So for the quarter most most of it reflects sort of the increase and our profitability in the bonuses that would be related so as you know there kind of throughout the year parked in the corporate bucket and then at fourth quarters, when we allocate them out. So that's that's the bulk of it but over the course of the or we have made some.
Some additional investments and some of our areas to support growth, particularly in the key area.
Support the infrastructure support the security aspects of our networks.
And applications. So we don't break it out.
Were flat lining those types of expenditures as well.
And and really what's going to drive anything either up or down is more of the sort of variability to earnings that.
That would have bonuses sort of attached to them okay.
And.
Call in summer.
Presentation, you talked about.
The percentage of clients that you had to transition over to the cloud.
Around 15%.
To give us an updated number with regard to that metric.
It's one of the metrics that we're lucky that.
And we're going to talk some more of that at our Investor day.
I threw out that one data point on.
How how argus on demand compared to cloud.
We.
When I answered is where we're not too worried about.
Achieving that metric as the probably the best way to answer it and that could cause us to want to share that metric with you at some point so I see okay and then.
And they have a follow on question I guess, just trying to understand how to think about the cadence.
The cloud.
Hi announcement is obviously significant.
As a tool for your customers and I'm wondering if youve got any client.
Expressed to you a likelihood to wait to convert until that tool is ready to go.
Well, what Carl what do you do that one.
Well that many clients expressed the desire for the tool in the future we've had no clients holding back because of the tool.
We took a very cautious approach to how we wanted to clients to move thing Bob mentioned in his opening we we segmented the customer base deliberately went up to a smaller clients first we now beginning to talk to a larger clients as Bob said, it's a little bit more work for them as they consider moving to the cloud because of their infrastructure, but some of the key things that.
We did two facilitates a larger clients.
So they can take all the historic data within the different versions of the models and we talk with them into the clouds and I think we mentioned before our intention to allow them to be able to convert the modifications that we writing them into the cloud as well.
All those things are available to a larger clients now and you'll see a larger clients want to move a little bit kuka because of luck.
And then just one final question for me you talked about the largest contributor to property taxes topline growth being UK performance.
Found in Ontario, and then strength in Manitoba and get back.
And are you able to give us an idea whether it was one of those factors more than the other.
In other words, I'm, just trying to understand the Ontario rebound in particularly strong.
I know that UK business.
Very well just trying to figure out.
Where things are falling out for you.
So I'd, probably say this way the.
The.
Performance in Ontario.
Got back to sort of normal.
Close rates for the amount of appeals that were occurring.
It's not excessive.
It's just coming into a good normal.
Closed rates, which has got we're happy with that.
UK had a similarly, good quarter, but I think more more.
We're probably started talking about the business in a much more broad sense, because the U.S. had a great quarter.
The.
The balance across some of the adjacent product areas like empty rates in the UK was good.
You know so so I actually you know we talked about 2020 as being a strong year and we do it with confidence and it's not on the backs of just the return of Ontario in the UK.
All of our businesses are really starting to perform.
And frankly and I get this dead wrong AMSO acute mi keep me honest here, but right now.
We see that we've got about unevenly balanced business between the UK, Canada in the us.
And because because of all the fascination with Ontario in the UK Pos is not been.
Tracked all that well, but they're having a great year.
And we feel like it's going to have a really nice finish here. So.
So more and more and we'll talk about this said at the investor off site or sort of Investor day.
You know we've got a business that is getting to where where I wanted to be in that as you know lots of different appeal cycles and lots of different markets.
And we have growth available to us from.
Really driving an industry strategy.
I'm driving a major account strategy and a volume strategy and and so.
We have a really really nice.
Opportunity in front of us and we're getting market share growth in every one of those markets.
Do you do you get the sense that you're taking share from the smaller.
Smaller players or.
100% in the UK large and small.
In the U.S. is just flat out organic growth in the industries, we support plus the investments we made in a couple of states.
And then the you asked one of the interesting trend or sorry in Canada that one of the interesting trends as Ed.
People are getting out of the in house business.
We can show them these large real estate owners.
We can show them.
Our ability to deliver.
Savings at a much higher level than they have without the internal cost.
The other interesting thing and we Didnt, we didn't talk about this but.
The team in.
Alberta, which covers the.
Western markets from Ontario to BC had has in the last year put a real focus on mid market like going after volume.
And I was out there.
Weeks ago couple of weeks ago, and they took me to their numbers and it's phenomenal. So we're getting share in secondary markets as well so so looking at as.
It's in pretty good shape like we got a really nice run in front of us in the more successfully against the more you make investments in technology share gives your pricing power. So all the things that we've been talking about are starting to materialize now.
Okay. Thanks very much.
Thanks.
Thanks.
Thank you.
The next question is from Stephen Macleod BMO capital markets. Please go ahead. Your line there is now open.
Thank you good evening Hi, Stephen.
Hey, Mike.
I just wanted to.
Just follow up a little bit on 111, the contribution in the quarter was a bit higher than when I was looking for just wondering can you give a little bit of color around what you expect from that business on a full year basis.
Yeah, you want to do that color.
I'm just trying to recall the numbers in my head.
I'll jump I'll jump in its a.
No I'll jump and no those are kind of levels that that we're expecting Steven.
I would say that type of engagements that we have are sort of lengthy types engagements as nice steady flow to them. So yes, we could we could expect some some nice even kind of numbers thats what youre seeing is what we can expect but we didn't we didn't buy 111 for the revenue we buy 111 to.
Accelerate the move to.
Enterprise company and I can guarantee you that Carl will be happy to tell you about how great. That's going so Carl go for it.
These guys are integral to our move to enterprise sales.
The knowledge that the team bring from one of the level 111 about.
The CRD marketplace. The other software vendors in the marketplace I mean, there experts in softer selection.
Implement all the key technology is actually I'm, sorry, the voltus.
Yes.
And others, so that they have some very detailed understanding of how we would integrate to these are the technology as we go forward.
They continue to attract a lot of attention for my large clients, who want to strategy advice data strategy advice.
All these offerings basically wrap around the where are we going into much more of an enterprise solution. So the supporting push into this will have extremely well and they continue to basically secure contracts along the way at the pace that have previously to lengthen the difference.
In the scale that we didnt do that historically and software services business is very aligned around our software. This is a totally different business, but as Bob said, we didnt ask them to join our company. So that we asked them to help US go forward in the enterprise level.
It's going extremely well in fact in London connect to I was shocked.
How many people basically sort them out for conversations.
That's good color. Thank you.
And then just on the property taxes was one thing you did talk about.
And we're sort of seeing and now we're seeing that ramp up and.
Settlements.
In the back half of this year as expected.
You sort of referenced the next settlement cycle and I was just wondering if you brought a little bit more color around.
Where we are in the later in the major cycles in Ontario in the UK and when you expect the next cycle the sort of pickup.
Hi.
You want to do as well.
We're.
Right now this is currently third year in terms of Ontario, and the UK.
As it stands in the UK.
This is a four year cycle, although there's a bit of a question Mark where there it will go back to five year, but anyways.
So so we continue to expect a.
Very well.
We have a very long pipeline, we have strong pipeline lots of backlog and it'll likely spill over into the next cycle. So we're concerned 20 122.
Is likely going to see a lot of 2017 settlements and that's likely going to happen with Ontario, as well and with the ramp starting up in 2021.
Finally, they have a little bit of.
You've got to go through a process of.
A building that new pipeline getting the appeals and system.
But with the overflow, we should sort of see a nice sort of steady steady flow to our revenue streams.
So that's how we're we see it right now Steven we must we must have no.
Seven or eight jurisdictions that do an annual cycle now right and so they're not they're not susceptible to.
That 345 years cycle by the way the longer the cycle, they can be incredibly profitable because ukraine.
Bad So look I think one other things that we want to do at the Investor day is to share with you. How this thing moves like how and how it unfolds in the future and particularly.
By our success.
We keep talking about Ontario in the UK, we have to remember one of the things that we did in the UK that gets clouded over with this idea that they slowed down the.
The completion of of Appeals as we made a big investment after we bought CBS and sales capacity in resources to go after market share and and that is.
Really what's going to drive the big opportunity as we go into the next cycle. Please go from 20% to 30% share which is our stated goal.
That that really really puts the next cycle in a really good place and again, we've continued to grow in Canada in the us so more and more you'll hear us talk about how the business is performing as a whole unit, obviously, Ontario, and yukio be big parts of it.
But.
We feel very good about how this business could perform over the next three to five years.
Okay, that's great.
And then just finally you talked about the.
The initial portion subscription going to your SMB clients.
Do you think about it in terms of.
The duration of client base or is it sort of get a critical mass and then it sounds like you want to move onto the next to the bigger set of clients, but you'll still.
Maybe penetrate further into the SMB is is that the right way to think about it now we think about it as managing three distinct markets.
SMB.
Large larger clients in the region.
So what are we going to do with large clients in Germany, France, Canada the U.S.
Europe , Singapore, and then large global transactions and we've set up our.
Structure or sales organization or go to market around those segments.
Separately.
And you know to be able to process. The volume we did in the first quarter as we stand up our cloud business.
It is a reflection of that strategy and.
That's that Carl Carl Architected that.
As part of our go to market strategy, we brought some really smart people in and you know Thats why you were able to do you know more sales revenue in one quarter.
Then what we did with it would be you know.
Now, it's probably four years ago, well, we didn't have that kind of infrastructure in place and so we're going to optimize all three of those areas.
Okay. That's great. Thank you very much.
Thank you.
The next question is from a Deepak Kaushal GMP Securities. Please go ahead. Your line is now open.
Hey, guys. Good evening, thanks for taking my questions.
If I get the message loud and clear you don't want to focus on any specific regions anymore in taxes more of a broader.
[laughter], but I do have my last question on UK tax if I may yes.
It's just kind of curiosity 'cause it because there was some.
New slower noise recently about.
The UK cutting off tax claims I know it was cost for this cycle.
Some people still see it as a risk for next cycle, what's going on there and is this related to Brexit and the whole uncertainty in the need for the government hang on more cash and can you talk about.
Any kind of.
Hi, this is around the political risk around what's going on that much like we did as pretty big deep dive on that including Alex probing meeting with the government.
And I look at we can't control how the house is going to run that run their business, but we're not anxious about that problem right now.
We were looking at how they are going about trying to get the next cycle proved in inside the house and.
You know that that is.
That's the there they've had a couple of delays is already on that.
By the way.
Hi, good if it comes to be that they can't get it passes is it's actually a positive thing for us.
You know because we'll be able to continue the bill our customers for another year of the cycle and I'm not I wouldn't put that into your models goes we think they'll get something done but.
The I think if I had to guess I think there's more probability on the upside than the downside around that in the UK.
Okay, and then on the talk side is broader Europe Continental Europe .
An opportunity for you there is that something you guys are thinking over looking out.
If we think we have.
Really good opportunities in the markets, it's a different tax system over there there's a couple of.
Germany, and one part of Northern Europe is looking at moving towards a similar tax system. They have in UK.
And in North America.
It's it's early we have.
Tremendous growth in front of us and pretty close Adjacencies that.
That we can go after in the markets, we serve and I think we're in a period here, where we're going to leverage the investments we've already made whether before we started another one.
Okay, Great and I do have one more kind of macro question.
For you I, probably less directly relate to your business given given where you guys are with your your cloud strategy.
Ill for strategy, but when you talk to your.
Global enterprise customers your global systems or service providers.
Some other key players in the industry what are the same to you or what are you hearing from them in terms of macro uncertainty.
Impacts on their end businesses.
And what they're thinking about go into year end going going into next year.
Any kind of insights or thoughts you can share on that.
And some more.
This isn't a sound bite kind of answer like its.
So a little bit like this this is a professional investment costs now its global.
And has the complexity of different asset classes in different geographies.
And and the one thing I would say is that I don't think there is one of our customers that thinking that next year, they're going to reduce their focus on real estate.
Across all the asset classes that there are supporting.
And particularly for pension funds.
You are seeing even double down facts are where they are investing directly now in real estate they see it as a asset class.
That.
You know can support their business model, you're seeing that with insurance as well.
You know, where it's a it's the one asset class that you could create certainty of income around even in a very difficult period.
And and then it becomes a little more complex because.
You started thinking about it as was the right city, what's the right.
Market, what are the right asset classes and what I like about all of that is it's more and more becoming a professional investment class they need to tools they need the data they need to be able to do this on a global basis.
And that plays to our strengths, so but I honestly.
If you went to a conference on real estate, you would hear about the risk of retail or what is we were Ics mean or.
What's the right way to deal with tenant experience he might even hear about whether.
Energy based economies are going to be difficult for real estate.
Just like we've had in Calgary by you don't hear anybody, saying that they're going movies are cutting back on real estate as an investment class.
Okay I appreciate your thoughts on that sorry go ahead.
And reinforce Bob's comments on it.
Connect conference we had several customers present today, who just talked about the robustness of the industry.
More available capital too.
More investments going into different asset classes.
And the demand that said the scarcity of assets to bye bye.
The global level, even with certain uncertainties, the still very optimistic about the next several years.
Okay. That's helpful. Then I appreciate the thoughts on that.
Kind of a question and then I've had.
In a broader macro sense.
But I'll pass line I'll look forward to see you guys December 11th Thanks, Alright. Thank you.
Thank you.
The next question is from Paul Treiber RBC capital markets. Please go ahead. Your line is now open.
Good afternoon guys.
In the paired remarks, you mentioned growing interest in the cloud outside of North America. Previously you had a sales strategy to ramp Argus out in a licensed side at least in those markets How's the pipeline both for license outside of North America, I guess with existing clients and then what's been the.
The interest.
So in those new markets for the for the cloud.
Well look at it is a is a game changer, when we go into markets like Germany, and France, because not only that we bring.
The most advanced modeling in forecasting tool in the.
And the market that we bring it in a modern.
Platform right. So by the way you get the benefit of that at the other end of the spectrum.
Our biggest customers are talking about global valuation equals global data.
The large.
Investors that are looking at models on a global basis want to be able to compare.
An investment opportunity for an office building or multifamily in Singapore to London to New York.
And that's all we do that's the whole idea.
And then we follow that success into the market because they have one of our largest customers. You know we've talked about some of the large German customers that we've landed in the past if they're using our tools to run their global business.
That generally get seen as the best tool in the industry and so we want to go deep in those markets as well. So that's that's the whole strategy is to create tech NV and followed up with good software.
And the other point, though as I mean, the point that we going into these new markets would only selling.
Cloud subscriptions as we said before has been really no pushback is we've entered these new markets.
The reception has been extremely good.
Even now clients in those markets.
We are currently exists in perpetual license is asking for subscription licenses. So it's been quite positive.
In.
Just two months left a in the ended the year and before.
And that the license will no longer be available.
Since last quarter, but I'm, hoping you have a better sense in terms your pipeline, but what's your thoughts in terms of demand for license heading into Q4 distinct or is it possible you may see a flurry of orders before it goes before stronger available.
Organism potential are going to try and them.
We still got try and push them to subscription as much as yet out I mean.
It's a natural reaction.
When you make an announcement like this but.
The benefits weighing a lot of these situations. So the benefit of didn't really really well receive so.
From my perspective, I don't think we're going to see that much of a difference of a push towards license.
Yes, because we do if you do that you're creating a two step process right. So you if you double down on buying an arduous a bunch of Argus enterprise licenses to protect your environment now.
Because you want to pay upfront right, because because we'll still sell Argus enterprise on premise next year.
Just to make sure that people understand and clarify that but we'll only sell it as a subscription solution, which by rates could be argued is morning and so.
So there will be to your point, there will be potentially some interest in in doing that but we're condition our salesforce.
Ill get the value out there with with subscription and honestly for us Paul.
We believe that building our subscription backlog is important but more important than ill make in the next quarter.
And I've said Thats a good strides you have the.
Lastly in terms of property tax just to clarify some your comments you obviously had a record year. This year and then you said 2020 would be a strong year.
We interpret strong as you continued growth or is there, possibly going into 2019 is I think in Ohio or near term high watermark.
No growth.
Okay, Yes.
That's great. Thanks for taking my questions I mean, just like just to get everybody on the same page.
We're going to have a.
Strong second quarter.
Again stronger than last year's second quarter, because the annuity billing then.
General across the board strengthening of our business.
Okay. Thanks for clarifying that.
Thank you.
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Thank you.
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Okay.
Yes.
She was funding.