Q4 2019 Earnings Call
All participants please stand by your conference was about to begin.
Good afternoon, ladies and gentlemen, welcome to all those groups fourth quarter and full year 2019 financial results Conference call.
During the presentation, all participants will be in listen only mode.
I was reminded <unk>. This conference is being recorded so now let's turn the conference over to this gondola participants. Please go ahead.
Thank you Michael Good afternoon, everyone and welcome to August 4th quarter in your I'd be solved.
For the quarter on your ended December 31st.
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Right right earnings results news release issued after market close. This afternoon. It's also posted on our website along with our.
Financial statement.
Is it all to school Dot com.
These documents for more information.
Joining us today, Bob Cook, Chief Executive Officer, an inflow Burke, Chief Financial Officer, well actually doing this call.
This obviously Houston will also joined by some colleagues.
But no Gordon what you're spending.
Well start to do with some prepared remarks, and they'll move right into the two any thoughts and then of course, if we miss anyone.
We dramatically.
Let me get started please be advised that some of my statement responses to questions. On this call may contain forward looking information I would hope we view the companies.
Thanks for more information about the was an outsized he's a forward looking for me.
[laughter] reminded that also scoop uses certain non-GAAP non <unk> I brought measures as indicators of financial and operational performance.
These are not defined performance measures.
Right. So we do believe that the are useful supplemental measures.
Our system bastards in a sustainable and investment in our shares and provide more insight into our performance.
Oh, I thought about sort of over to our CFO Angelo School starts with a review of our financial performance.
Thank you Camilla and thank you all for joining us on the call and webcast. This afternoon I'll start by bringing the year and then dive right into relevant drivers overall, we characterize 2019 as a pivotal year for all of this group.
The significant process throughout the year helped us reaching a critical inflection point in our multiyear strategy.
Financially, we had a strong consolidated results and growth in key financial metrics with double digit top line and earnings growth in our consolidated results.
Annual consolidated revenue rose, 11% to 567 million driven by record, 21% growth I property tax and all that.
Analytics also deliver grew by 10% growth during a key transition year.
Strong revenue performance led to a 24% increase in adjusted EBITDA to 88.1 million.
Hi, being a significant improvement to our justice <unk> to $1.47.
Consolidated margins also improved notably to 15.5%.
The strong financial results from 29 to set a strong foundation and demonstrates our ability to leverage past investments in innovation and acquisitions and generating superior returns.
And operationally, we achieved a number of very significant milestones critical to our long term strategy.
The key milestone from 2019 was bringing Argus enterprise on the cloud to market.
As many of you are aware this has opened up attractive long term growth opportunities for office analytics business.
At the same time, we transitioned our auger software pricing model to subscription based model that benefits clients, while building a predictable and strong revenue base for office, helping support the long term aspirational targets, we outlined for you during the year.
The transition to Cod is proceeding nicely solvent provide you with some color on this a little later.
Beginning in Q1, we will begin to provide you with your metrics that we had outlined at our Investor day in December specifically metrics covering cloud adoption rates retention rates overtime revenue and geographic revenue mix.
For Otis analytics, we finished the year on target and within the financial guidance. You previously provided full year revenues increased 10% to children 2 million recurring revenues grew 18% for margins came in at 18.2%.
With the move to full subscription pricing beginning in 2020, we had expected a greater mix of perpetual license sales to subscription sales.
The variance on mix affected our revenues and margins for the fourth quarter, but having said that we're we're very happy with more subscription sales as they have a higher economic value over the longer term.
Another factor impacting our revenue comparability were two very significant subscription on premise field one in Q2 and one in Q4 that as a result, a buyer for US 15 revenue treatment had sizable upfront point in time revenue recognition.
On the earnings from our margins were impacted over the course of the year like by the factors I just mentioned.
One the transition to subscription and to the investment we made to develop and bring the E commerce platform to market.
We expect going forward that are spend will only grow in proportion to revenue growth.
As a result of both factors margins are expected to remain consistent in 2020 and begin to see a rebound in 2021 as we highlighted also at our Investor day.
Overall, we saw a lot of positive trends in 2019 from August analytics.
Sustained strengthen Argus enterprise add on sales both from customers any more seats and adding more functionality. This made up approximately 70% of AG software license sales.
Robust rather robust growth in our customer base with particularly good contribution from the SMB space.
Healthy volume of new customers outside North America.
The strong start to our a cloud transition more on that from Bob shortly.
And our appraisal management business had a very strong year, where we continue to benefit from customers, adding more assets on our platform, adding new customers and expansion into Europe and Asia Pacific.
On property tax.
Sorry on our property tax business had a phenomenal record year with a very strong finish in Q4.
Strong Q4 revenue growth of 39%.
And the materially increasing earnings contributed to full year growth revenue up 21% to 213 million and earnings growth to 74% to 63 million.
Annual revenue and earnings growth was driven by the UK, along with solid growth in the U.S. and Canada.
In the UK, we saw an acceleration of settlements from the 2017 less especially in the second half of the or as well annuity building significantly contributed to revenues and is expected to be even larger in Q2 2020.
A reminder, we recorded annuity billions of 9.9 million and 4.7 million in Q2 2019 in Q2 2018, respectively.
In the U.S., we had growth in our core markets and a good build up of pipeline work in emerging regions, where we have previously made organic investments.
And in Canada, we call. The first half had strong performance in Western Canada, then in the second half, Ontario settlements.
Started to rebound.
This demonstrates the strength of our national model in Canada, where the most multiple cycles provide for more balanced performance.
Overall, the strength of this business goes beyond any specific jurisdiction or tax cycle, but rather is rooted in the strength of our competitive advantages that have allowed us to deliver study annual growth for many years.
With several factors aside when we look at our internal Kb eyes, we see really positive trends and increased values of contingency contracts strong success rates.
Hi, blind volume driven by improved business development.
You have appeals maximized driven by the strength of our data and overall operational productivity, which has been improving as we have added more technology and automation for delivery model.
There's no doubt all contributed to strong 29.5% margins, we posted for the year.
You know now to our valuation in cost advisory businesses performance was good consistent both for the full year and in the fourth quarter driven by strength in our Canadian cost Division.
Businesses enjoy strong market leadership, hence why growth has been modest.
We are building upon the organic strengths of these businesses and optimizing what technology initiatives.
After year, they proved to be solid operators and drive strong client value as exemplified by the superior client and project retention.
At your Maddox as you are aware subsequent to quarter end, we announced that will be spinning off our genetics business with WSP dramatics operations. So I'll just spend a minute on that.
The mentally we came to conclude that this joint venture structure would generate the best possible value for all stakeholders and most favorite favorably positioned gymnastics for long term success in its core market with a strong partner.
Combining our collective technical expertise and <unk> director of our people Accretes Canada's largest pure play geovax from that will provide them with numerous competitive advantages.
In addition to revenue synergies. This will also offer them more services to clients with a national scale to take on the largest and most complex projects, while remaining agile enough to be competitive at the local level for smaller projects.
We expect this will create positive opportunities again for clients and employees and overall there is a strong cultural fit with mutual respect on both sides.
For our oldest group, we always strive to maximize value of all our business assets and this check the box.
Well, Jim addicts was once an important contributor over the years, we pivoted our strategy to become more focused on key CRT offerings. It inevitably became the encore.
We believe that this solution provides the best option and maximizing value.
With respect to the transaction, we're on target to close in the second quarter, we expect to have an equal ownership, but with WSP just under 50%.
We will account for this under the equity method.
In Q1 and for part of Q2, the dramatic <unk> segment will be reported as a discontinued operation and removed from our consolidated results.
Finally, our corporate division corporate costs tend to tend to trend at higher at 28 million representing 5%.
As a percentage of revenues compared to 4.5% in 2018. This is consistent with our previous comments that corporate costs would increase as we continue to scale our business.
I'll wrap up by reiterating that our balance sheet and debt ratios are in great shape.
Providing us with solid financial flexibility to continue in investing in our future growth.
With that now I will turn it over to Bob.
Agile thanks, so much good afternoon, everyone.
As you just heard we had a strong finish the year and we fully expect that that momentum to carry forward into 2020.
This could not a bit accomplish if not for the incredible talent on her team honestly, we have the best team in the industry.
As I reflect on the achievements from 2019 looking beyond our financial results. There was a remarkably productive year across the entire organization.
I'd also say analytics, we bought Argus enterprise on the cloud to market and rapidly shifting our organizational focus from a building phase to sales execution with good success.
Our geographic expansion investments continue to bear fruit and we made good inroads into the markets. We invested in we welcome a lot of new customers have continued to brought the use of our office analytic solutions with existing clients.
At our property tax business, we continue to gain market share and made notable advancements in improving our economic model that strategy to pursue sustained growth over the long term.
Our valuation at cost advisory business sustain their market leadership.
Physician and as I answered just discussed we found an attractive alternative for our Geo Maddox business.
Above all.
We delivered incredible value for customers are into in commercial real estate offerings drive better decision, making for clients, helping them put to improve the visibility the flow of information through their critical business process to maximize the value of their CRB assets and investments for the.
Reason Altice group as a company contingent continues to enjoy exceptionally strong client loyalty across every one of our business lines.
We've learned a very privileged position a court markets.
It's exceptionally strong moats around T. group, two key growth businesses Altice analytics some property tax.
Growth year, our strategic initiatives helped protect and strengthen those modes, while providing us with the foundation for sustained profitable growth over the long term.
We're very excited about what's ahead for 220 20, So let me start there.
First of all our Altus analytics business, reaching critical inflection point setting us up nicely for 2020 and beyond the accomplishments in the past share of unaided enabled two notable changes to our operating model in 2021st our flagship Argus enterprise.
Product will be predominantly sold on the cloud and the second we are now fully on a subscription model offering the all of our software products only on subscription terms going forward.
Having just recently held our annual internal Argus sales conference I can tell you our sales team is fired up.
The energy level is as high as it's ever been our hard work to get the product to market and to operational our operationalize our cloud infrastructure is largely behind us now.
We already have a solid user base on a cloud platform and ourselves for US has done a great job adopting to the new pricing model, while building a healthy club pipeline of opportunities for 2020.
The functional building blocks are in place going forward, it's all about the execution and I have full confidence in this team.
Quite interested artists enterprise cloud is solid and the conversations we're having with clients fellow they that's a question of win and not if clients clients definitely recognize the value of the of being on the cloud.
How it aligns with their internal strategic goals the cost savings related to reduced IP infrastructure simply become a positive byproduct for all our clients.
We're very encouraged by our customers except to the new pricing model.
Q4 was there last quarter selling artists enterprise on perpetual terms for existing customers and while we saw some customers by additional perpetual license, leaving the corridor. Many of our customers were fairly agnostic and we enjoy strengthen our subscription sales. This is a solid in.
To cater for our expectations for 2020.
Overall, we made great progress in expanding the use of Argus enterprise globally, and specifically on the cloud.
We start 2020 with a healthy CLO cloud pipeline of future opportunities.
Pipeline includes a good mix of volume from smaller sized transactions and some large deals that are planning to take advantage of what Argus on the cloud offers plus we feel optimistic of the migration of our existing customer base will accelerate in 2020.
And as you know starting in the Q1 report will commence reporting on our cloud adoption rates represented as a percentage of the Argus enterprise user base contracted on Argus cloud.
As an inner mitten.
Indicator of progress, though I thought I'd share that we're approaching 500 cloud customers, that's seven months and.
We're significantly further along than we were with either Argus on demand.
And with a key when both were first lunch.
This includes take up from new clients.
Many migrations from existing clients, who proactively wanted to move over mid contract.
And consistent with our expectations. The early adopters have been largely from SMB customers.
But we're also enjoying positive engagement with the larger more influential firms, who will help drive adoption through the ecosystem.
Some trends from those recent conversations.
From the customers want to migrate over the club proactively mid contract primarily from the mid SMB scale or the from the SMB space. The primary reasons include more efficient deployment data collaboration whether team and elimination of all located allocated service space and software management. This.
As a recurring theme for new customers AG is only available on the cloud pickup has been very strong, but many customers already operating a cloud only strategy. This forward thinking is becoming more prevalent prevalent in our industry and as customers see value in the cloud software and in key features.
An arduous cloud like a centralized database that customers can access from any computer.
So really we haven't had any pushback from new clients by not offering and I'm proud of premise alternative though.
When some advance discussions with the number of key service providers and expect to never them, we'll make a commitment to the cloud platform in 2020.
I guess cloud not only offers significant internal benefits to the service providers.
It also provides value and how they deliver their service to their customers.
So we're on track with our plan.
On top of all of this we're also having conversations with some of the largest CRM customers in the war and the world where the move to cloud will be close or core to their internal strategies and in many cases the conviction to move is there.
Of course, these migrations will happen when the time is right for them internally with their IP groups. As there has numerous complexities to account for with these large accounts.
In many cases, we expect our top 200 customers well take that opportunity to broaden the use of ours Scott globally as the cloud simplifies their customer environment and enables global data injection.
This represents an attractive upsell opportunity for us and recall less than five of our talk to end customers have deployed Argus enterprise globally.
As mentioned, we have some larger opportunities that pipeline, but if the volume of these larger deals accelerate.
This presents attractive upside to our model that we presented to you.
We continue to have high conviction that this industry is shifting towards platform solutions and we're seeing some strong indicators by way of new Rps.
And the conversations we're having with our largest.
And global customers.
This continues to be one of the most exciting opportunities for a company some of the cloud platform. We're in good shape to address the market need.
At this point.
So as not as should any specific guidance for all this analytics.
But we do want to reinforce that our expectations for 2020 are consistent with our aspiration a long term goal to achieve altice analytics revenues of 400 million for full year 2023 within associated adjusted EBITDA margin at over 30%.
We expect the track inline with the potential revenue and adjusted EBITDA trajectory, we reiterated in the long term financial potential slide at our recent Investor day.
At our I guess, the general run rate of the drivers Angela covered off from 29 game is expected to continue into 2020 expected. This year, we have shifted all products to be only sold on subscription terms.
And that compares with last year would only half.
I was 29 team still had a high majority of license sales on perpetual germs.
Overall, the 70% add on trend of a licenses that Angela referenced has been very consistent over the last couple of years and should continue to this year as we discussed at length I know recent Investor day, the cross sell upsell opportunity remains substantial.
We've been improving our operating model to go after this more aggressively including a very focused segmented sales model. Similarly, we expected continued momentum momentum with new customer wins and continue to geographic expansion into Europe and Asia Pacific.
We expect all of our new a deals to be on the cloud platform, which has a modest premium on the software license price this will be a moderate contributor.
We also have a growing pipeline of multi product deals as mentioned.
And we also expect sustained growth from our data and appraisal management solutions to drive is there will continue to reflect the trends.
Angela covered off from 29 team.
So all to say.
We are making the ship to be an enterprise company.
And this is defined by global adoption of Argus cloud as a data in valuation standards.
Our commitment to the full stack of solution related to see our re portfolio unfunded analysis.
Pardon, an overlapping relationships with our appraisal management and data solutions offerings.
Global partnerships with the largest the world's largest service providers.
Differentiated solutions that will support the major.
CRB workflows and large global transactions has become the standard platform for global asset and investment management.
But.
We feel really good about the next trade stage of growth throughout this analytics business and our ability to get back on the path to long term steady double digit top line and profitable growth at expanded margins.
The market fundamentals remain exceptionally attractive and support our growth ambitions and we're very well positioned for the opportunity ahead, especially with our cloud strategy, which allows us to improve the economic value of our contracts.
With the cloud execution further along in 2020 were known to position the double down on new innovation areas to further our long term growth plan.
This would include opportunities and data driven insights and adjacent market verticals complementary workflows, where we currently have very limited penetration.
Let me talk briefly about RCR CRB consulting businesses.
In commercial real estate institutionalization continues the trend for outsourcing for series specialized services remains resilient.
This speaks to the steady demand and the market opportunity, but also reflects the reality of increased competition for talent.
2019 was a phenomenal year for property tax and 2020 is poised Steve will be better on inorganic basis.
Two of our biggest mark as you can Ontario will be in their final years of their respective four years cycle, which typically represent peak revenue potential as case settlement volumes typically picked up and recall with a high majority of those revenues were based on a contingency basis and therefore, a directly hit the bottom line.
Well, let's comment to see an acceleration of settlement activities in the final year of a set of a cycle theres always a continuation of settlement activities that spill over into the following years of new cycles.
Also in the UK the last year the cycle experiences the highest annuity billings are the entire cycle. It increased from 4.7 million in 2018 to 9.9 million in 29 team and when it even be higher in 2020, So again Q2 should be our seasonally.
The strongest quarter the year.
But note that the annuity goes away in the first year of the new cycle in 2021.
And looking ahead to the first quarter, we expect that are Canadian revenues will face a modest headwind NBC and experience a delayed due the change in pre roll assessments.
However, we expect that to be offset by stronger performance in Ontario, Manitoba on a year over year comparative basis.
Again this speaks to the strength of our National model, where you see different psychos contributing a different times and with growing scale.
This provides for a more balanced revenue performance.
I should also say that to you as performance was very strong in 29 team and we see this as one of our growth planks as we move into 2020 and 2021.
Overall this high margin was business has a strong contributor to cash generation and continues to have an attractive growth profile associated with it we have a robust pipeline of appeal work that is expected to continue for many years and this also provides us so the good backdrop for our country.
Holiday to performance, while we continue to feel the impact of the transition of our office analytics business in 2020.
Plus as you heard today from Angelo and as we discussed at our Investor day, we've been making significant process improving the economic model of this business. We're on track with their long term strategy and remain well position to continue growing market share organically, while improving operate.
Asians by leveraging technology and data I was just in the UK last week, they are well on their way on as the digital transformation.
So exciting to be with the team and see that performance as they fundamentally change the industry in the UK, Congrats salix proven and his team.
So in closing I would just like to thank our shareholders for your ongoing support and the confidence and trust to place and our team.
We're very fortunate to have a stable base of long term oriented owners. So we consider to be business partners.
Finally.
As you may be aware, we'll be hosting our annual North American Argus connect customer conference at the end of April the event has grown to be one of the premier real estate industry gatherings, attracting over 400 industry participants growing every year and continues to attract a lot of voice.
Very senior.
Professionals in the industry.
This is solid valued validation of the growing importance of our solutions across their organizations.
If you'd like to attend.
Please contact Camilla feel happy to be happy to gay organize and with that said, let's just open it up the line for questions operator.
Certainly sir.
Ladies and gentlemen, we will now take questions from the telephone lines. If you have a question Andrew we're using the speakerphone. Please lift your handset before bounding their selection.
If you have a question you can register by dining Star one on your telephone keypad and you can cancel the question if you wish by Domino's upon side.
Please press star one at this time as you have a question.
And the first question is from Daniel Chan TD Securities. Please go ahead. Your line is now open hi, Thanks for taking my questions. So good growth in the recurring revenue this quarter I just wonder if you can give us some color on whether that was more driven from appraisal management growth or whether thats from.
Subscriptions on the Argus enterprise cloud side of things.
I think it was both actually you know the hard part of the last couple of quarters is to is to forecast demand and as Angelo said.
We are really really happy with the subscription.
Revenue.
In Argus cloud and.
In in general.
We've got to quarter businesses appraisal management, and now Argus cloud that really should cause.
Really nice recurring and.
As we transition to overtime revenues as we go into 2020. So it was nice nice performance on both sides. Okay. Thanks.
Then you mentioned Bob that gave you having some really good conversations with some large global players can you help us understand what the sales process entails to have these.
Larger customers adopt Argus cloud globally, and where would you say you are in the sales process.
Yeah, I think it's.
The way the way we've been trying to represented.
Is that we're going to count on and we always have had a.
A number of large deals in pretty well every year over the last five or six years.
And because of.
And the second part of it is as I mentioned the service providers are critical and in both cases as as a large CRT companies go global they're looking for a technology platform to be able to control their data manager data get visibility do a global forecast and change the way they run their business.
And that's really really pronounced for the service providers.
They really have to start thinking about how they can control data to creative innovation to find different ways of doing business and to meet the new customer demand and so the conversations are going great. Obviously, because we're you know causing them to.
Think about deploying a global enterprise solution, you're going to talk to more people to be more decision makers, both financial and technical and so when we talk about becoming an enterprise company. We've got a team in place that knows how to do these larger transactions, they're going to take time.
You know naturally, but there for the most part on top of our economic model, we believe that run rate of the transition of our business to the cloud is going to really drive great economic value, we'll get our 234 deals a year that go with it and then we're trying to move this thing to be.
The the platform for the industry and so that will take a little bit of time.
Great. Thank you.
Thank you.
Your next question is from yearly link Canaccord Genuity. Please go ahead. Your line is now open.
Hey, good evening everyone.
Good day order.
Thank you.
I just want to circle back Bob on the on the larger deals.
Just how would you characterize the pipeline as it sits today versus.
Three to three to six months ago, and as you have your expectations on when you can bring in some of those deals.
Changed over that time.
We didn't really have a pipeline three to six months ago for cloud so its way better.
You know lifted we brought out the you've gotta remember we brought the product really in July.
We got a series of technology updates that we got to do through 2020, what's cool as we're going to really great conversations a lot of companies about what they're trying to achieving the cloud but their functional requirements are we're in it feels a little bit.
Like what we brought out AG and we had some of those early adopters except for way better added.
You know back back then we had real data migration issues, we did a superb architectural job and created a high bid easy to trend transition type of environment and so now we're talking about what are you trying to achieve from a data aggregation perspective, how are you thinking about workflows, how are you integrating with here.
Partners in the market and so our pipelines got a lot better because we're literally meeting the demand of these large theory customers were all building data strategies and so so I'd characterize it as a lot better I said in or my comments that we reiterated the guidance that we gave.
And given over the next few years in my Hope Michael is that as this becomes a standard.
You know its central standard to these companies.
It's going to really drive overperformance.
To our expectations as we transition, but not it's going well both of the service providers and went to large customers, but hey look there, they're putting expectations in front of us before they're going to <unk>.
Transition to a you know a new full new platform on a global basis. So we got some work to do.
That's fair.
I just want to switch to tax in the quarter.
Strong numbers were there any contingency wins or anything to call out in the quarter in Q4 for tax.
Not anything specific carried just overall.
We saw Ontario.
Ontarios volumes come in stronger it was weaker as you know in the earlier part of the year.
Similarly in the UK, we experienced the same thing and the U.S.
Came in pretty strong as well I just had longer tail to seasonality.
But there wasn't anything it wasn't like there was one or two large contingencies it was pretty.
Evenly.
Right. Okay, Yeah, I look at we've been talking Ontario in UK.
Ill for sometime now as core.
Areas of growth and what Youre seeing is strengthening but.
Honestly.
I would say that.
I gave kudos to Alex we already know that the Canadian teams Amazing and we've got such a great position, but boy the U.S. team is really coming on.
They had significant wins in the quarter that.
You know are really going to help us going into 20.
20 and 2021.
That really.
As these guys having their legs under them Weve David.
Tree visa, who who runs the you as made a bunch of changes in the U.S. at the beginning of the year about how we work the kind of market. So we're going after real new focus on large accounts a real different orientation and already are our success. In Q4 was way ahead of what we would have expected.
[music].
In in the U.S. and their backlogs awesome.
So you know I think you what you're seeing is.
Probably here and stop talking about UK in Ontario.
Because this is going to this is a highly balanced.
Said.
Opportunities throughout Canada in the UK some great adjacent season going on in the UK businesses is is really moving well and we called out and we will tell you are at the end of the quarter. The annuities for Q2 out of the UK and we're doing that just so people don't get too consumed by that.
And our goal will be to run by that as we go into 2021 with a completely balance business. So the tax businesses is firing on all cylinders that ain't going to stop is going to be great.
Okay, that's fair.
I'll leave it there and turn it over thanks guys.
Sure Gary.
Thank you.
Your next question is from Stephen Macleod at BMO Capital markets. Please go ahead. Your line is now open.
Thank you good evening.
Thanks, David Hi, Stephen.
I just wanted to get my head around this little bit about around the EBITDA year over year EBITDA performance and also analytics.
How much of the decline was attributable to last year being a tough comparable or is that not the right way to think about it.
It's a combination Steven it really is it's a combination of.
Having had that point in time revenue recognition in Q4 last year, which was a significant amount.
Coupled with the switch to a greater subscription sales in the fourth quarter, we still had a <unk>.
We still had some perpetual licenses, but that we hit more on the subscript subscription side and then just started the tail end of the investments that we had sort of ramped up in the late part of 20 818 early part of a 2019 and so the quarter still had a bit of.
That impact.
So it's kind of a balanced across all.
And it was in line with our guidance, yes and.
I'd also say the you know as we went through this transition and through this a success or subscription agreements. It was the hardest thing to really.
Get get a good handle on but still we weren't we're in pretty good shape, when we're done and we like our backlog going into 2020.
Yeah, Okay, that's right and then.
You talked a little lots of commentary obviously on the on the conversion.
You know, but here we are in two months into the the the.
New new cloud offering.
Is there anything that has surprised you.
Very materially to the upset or the downside I mean, I know you talked about some wins, but I'm, just curious like how things unfold and relative to your expectations.
I think any upside it's been like zero friction no no no he got a high integrity environment.
Customers are signing contracts.
We had a couple of transactions in there that where you know accelerated I would call transactions, one with a pretty important service provider that they wanted to go to cloud right away.
I was faster than we expected we had another one where you know the the client came to us with some really interesting ideas about what they want it to do with cloud and we're going to work with them to get that environment set up so I look I think the because it's been positive I don't Steve.
Do you think it was there anything on the Dow I did about positive stuff anything on the downside keep as their children who.
Runs overall development for us.
Oh no overall it was very positive I think good chemo the shoot faster, we put a lot of work into skill to skill.
The targets that we've set up through the year, we or have done a lot to work around latency continue to do work currently agencies.
You all things were positive in just a little work to do still next year is all about.
Adding more infrastructure more resiliency in those types of things yes.
That's great.
Perfect and then and then that those are helpful. Thank you and then just following on the UK tax business.
Is there anyway to quantify what the incremental Q2 impact would be this year like does it does it will it be something that is proportionally similar to what it how it grew between 2017 2018 2019.
Yeah, I I'd say that really has a fat.
Has a trend is pretty obvious yeah, I think one year two years three years.
Great Okay, well, thanks, so much.
Hi.
Thank you.
Your next question is from Deepak Kaushal at Stifel. GMP. Please go ahead for line is now open.
Thank you hi, guys good evening.
Yes, a couple of questions.
First off I, Bob I think in early in your prepared comments you mentioned.
How.
Selling for convincing and key influencer to adopt cloud encourages adoption the broader ecosystem beyond the firm I was wondering if you could explain more about how that works and perhaps given examples of what you see the potential there.
Yep.
We absolutely believe that as customers develop a global data strategy that Argus is going to be central to them. So.
The the ability to move data.
Into argas from multiple sources from an Apiay. So for example, yardi.
Into Argus is usually.
It usually happens.
During a valuation or where people are doing research or companies are trying to get of some visibility on their data and they usually happens in some relationship with a praise aro or a loan and more and more we want to create this environment, where if a customer wants to.
Yes.
Develop a work flow that automates the way they collect that data it will force their partners to take Argus as part of their workflow their network and and the whole cloud strategy is designed to be able to drive work flows between companies.
And so if the largest companies in the world.
Want to operate Argus cloud on a global basis than the appraisers have to be able to deliver Argus files.
Property managers will have to give information to collect the data into argus or into our data strategy and so it's not that different with where we went with Argus enterprise, where CBR AG I or invesco Astro Argus files around the world.
Then the the suppliers of those customers have to adopt Barcas enterprise. It's just now we're going to do it at scale and it's going to have high value.
In terms of not only for the service providers, but for the customer and we think that we can create some.
Pretty cool value out of that because if once customers start sharing and normalizing Argus files, we can use that to create benchmarks to start thinking about indexes to give visibility to share information both ways premier already into Argus Argus into Yardi and really set up work.
As for the industry. So we think there will be a natural and lift or network effect, but lv accelerated relative to the network effect, we got out of Argus enterprise.
Okay. That's helpful. And then when we think about the the discussions you're having with the large global theory firms in their cloud.
Strategy.
Hi is Argus enterprise in the cloud will that be paced by all other.
Cloud adoption of enterprise software like ERP systems, or other kind of back office systems that they might have or can this be done independently or are these customers mostly deployed in the cloud and other systems and now it's just.
I think the.
One of the if you dig in financial assistance Theres, two big players MRI and Yardi of which we're working with the already right now to develop a strategy about how we develop solutions, but don't underestimate internal systems.
Still excel.
Internal data systems reporting systems are all going to be able to take advantage of some of the tools that were building right. So that creates work flow opportunities and then.
On top of that Theres, a bunch of emerging companies that are doing some pretty close stuff like VTS and others and you know overtime will well find ways to inter operate with those and so basically we want to solve customer problems and the byproduct of that is that we should be in the center of.
Data flow for the industry because at the end as day.
The Big thing that we're trying to help is the improvement a reporting the ability to do a global forecast to understand capital planning to understand sensitivity on a global portfolio basis and that requires input not just from Argus enterprises from other systems as well and the more we do that the more that.
Become integral and central to how data moves around or industry.
Okay, Great I do have some follow ups on on your guidance commentary I want to donate to call, but but you know with half of your argue center for analytics software last year being perpetual and this year to be all subscription or you kind of suggesting there will be a dip in revenue in 2020 or can you naturally grow through that and yeah, I know I even tougher.
Yep.
Yes, we're not providing today any strict guidance, but if you go back to our Investor day, and if you look down to our outlook for 2023, you you'd sort of see the revenue curve continuously growing so we're not expecting any debt and you could use that as sort of.
You know at least optically as a guideline for now.
Okay, and then similarly on the tax side I mean clearly.
If you're expecting the growth in annuities in the UK to double in Q2 year over year versus Q2 last year.
You're not expecting the overall toxin is double year over year.
Ken can growth accelerate versus 2019 or decelerate.
Yeah. So so what we've said as you know in our outlook that we have another.
We're expecting another record revenue year this year and it's it's.
Our partially it's it's the incremental.
Annuity billings.
That will recognize as revenue and partly is just the overall strength of our pipeline and continued increase in settlements that we'll expect to achieve again this year.
Thanks for taking my questions Yeah.
Hi, we didn't see annuity would double I think Steve just sort of.
CDC above its on some.
Q2, 2018, 2019, instead of confirm that that would be a similar trend, but not a doubling.
Okay. Thank you.
Thank you.
Your next question is from Paul convert at RBC Capital markets. Please go ahead. Your line is now open.
Hey, guys.
Just on a in terms of the mix of subscription versus perpetual in the quarter, you mentioned that the mix was skewed.
Some of these towards more subscription versus perpetual, but why could you elaborate on why the buying pattern changed versus your original expectations.
Based on your feedback from customers.
Yes, we thought.
That a number of buyers that.
Would have pent up demand for on premise licenses would be worried about pricing.
Pricing.
Risk going into 2020, Bud and meant we saw a little bit of it but it didnt materialize and we definitely didn't find the flames on that we weren't out there, saying we weren't.
Previous years are certainly when to DCF day, just a job parallel we told them in the last two quarters, leading up to it you by the way is going to be really expensive. So you've been a load up in DCF to then load up on a and we did a couple of those cycles. We didn't do that at this time within.
Signal add on on premise subscription.
Revenue would be significantly higher and we actually made our salespeople neutral we prefer to take bookings up created better backlog and so our reps recondition not to go for that.
And you know I think probably the third thing is you know more and more of the industry prefers cover their customers prefer cloud is what what proved out so the timing has worked out pretty well.
And can you share.
An estimate of the.
Equivalent perpetual revenue that may have been that recognizes or recognize a subscription or what fanta bookings instead.
No [laughter].
Yes.
But I thought I'd ask.
[laughter].
You know what.
We actually started toying with that and then you get into some interesting conversations about would they have taken more.
Licenses if it was perpetual you know it sounds like I would say, it's not an apples to apples comparison.
Okay moving on to profitability in a and you mentioned that probably be similar to add in 2020 at a similar to 2019.
Just you know how do you see operating leverage versus.
Versus your investments.
Progressing through that through the year.
Well, we've given guy you know like at least long term guidance on margin and.
Look the way I look at it is.
We we basically.
Put a lot of pressure on margin.
Last few years on a combination of investments in the cloud.
The Dev ops environment do you need to operate the cloud new selling paradigm.
You know the work they have to do to get prepared to do it and so we think a lot of that is in place and so what we have now is the ability to create leverage to revenue you know like we've always said that the enters a day, where we're going to see margin improved through this cycle that we're in.
No, but we want to do it with revenue and there's a lot of operating leverage in the model because we put the infrastructure in place.
Okay, and then just one last one from me with the joint venture for Geo Maddox should we anticipate corporate expenses would drop proportionally are they mostly fixed.
Yeah, now gotten not materially there would not drop I mean, it's pretty Standalone operating unit.
So there would not be any significant drop.
Hi, good morning.
Yes, I'd say ball is we're lucky that.
Our whole allocation methodology around corporate expenses and just in general we put a lot of money into consulting last year for a whole bunch of reasons and you know where we're tracking you know a plan here that would allow us to really actually get a lot more scale at a lower at a lower operating.
Cost, including corporate costs, we want to get some leverage out of that as well.
Hi, Thank you.
Thank you.
Thank you.
Once again, please press star one of your telephone keypad. If you have a question at this time.
The next question is from Richard Tse National Bank. Please go ahead to line is now open yes. Thanks, Bob of those a 500 cloud customers, how many of those for existing customers versus the new customers.
Okay Gordon I can't remember do it for is all we were not really providing detail, but I'd say I'd say, it's well garden, what do you give a little bit of color one third is existing customer.
One third existing yep okay.
Okay. So there is your answer Okay and then.
Have you made any changes to your sales incentive compensation that really kind of push cloud here going forward.
I think I think we neutralized or overpaid on cloud and part of part of the costs.
As you know and part of the challenge of moving to a subscription pays model is where you know there's a timing here, we're paying higher commissions and so that adds so you know when you're asking the question about EBITDA you know that's factored into.
The cost of no push the transition towards subscriptions and pain PNM and we over weighted that are coming into the quarter like again like our our reckoning is overtime growth.
Coming into 2020, that's the thing we're focused on that's the number we want to give you and have you be excited about and so you know we may have given up a little bit on on expense or even to.
You know to get the cloud a machine Rolling I think 500 is a really good number for any company.
And you know we were happy to pay for that because we're playing the long game in his Angelo said earlier. This is revenue that as better economic value associated with it.
Okay.
And then just the mechanics for existing customers covering most of you paid for license before.
Are you essentially replacing the maintenance subscription and if so what sort of the average incremental price.
Gordon you want to do that one for and this is we sort of talked about this at the Investor day as well as is.
Existing customers is roughly around a 40% uplift.
On what they're paying us today maintenance when they may migrate over to the cloud.
So that's sort of the the general level on.
This sort of that fees with you.
And then just technically and they have an instance license perpetual.
Does that or do they sort of still keep that on premise, while paying that subscription or is it.
Into your infrastructure they they don't keep the on premise infrastructure, they move that date or in everything into the cloud.
There once they've done that they're operating now in the cloud.
Okay, all right great. Thank you.
Maybe I'll just add so theres three three scenarios just keep a maintenance you have an on premise you want to add an on premise customer.
Sorry, a user than you have to buy an on premise subscription license and if you want to go to cloud you have to have a cloud subscription license. Those are the three scenarios that that contribute to over to overtime revenue.
Okay, great. Thanks.
Thank you.
There are no further questions Mr. course, though I would like to turn the conference back or which user.
Oh, thanks, everyone.
Great finished the year, but I'm way more excited about 2020 as this things Roland.
And we feel really really good about our ability to deliver on our customer promise and I. Just finished by saying that we've got a tremendous investor base and we're looking forward to Ah that partnership that I described earlier.
Earlier continue to grow for both of US so thank you.
Thank you.
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