Q1 2020 Earnings Call
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Joining us today about Porto Chief Executive Officer, Angelo Bartolini, Chief Financial Officer, we'll start with some prepared remarks, and then we moved right into the two in a session.
The question. Please contact me directly by email.
Before we get started P.C. advised that some of our statements and responses to questions. On this call may contain forward looking automation various factors and assumptions were applied or taken into consideration in arriving at the forward looking information that do not take into account the effects of events announced today.
There are also numerous with and uncertainties that could cause actual results two different mature early from those set out or implied by such statements I would or would you. Please review the company's findings of theater or on the M.D.N.A. or on her website for more information about the risks and uncertainties that <unk>.
In addition says will be addressing our outlook with respect to anticipated in pack from the cold at 19 pandemic I did want to reiterate that the extent of potential disruption and 2020 cannot be known with any degree of certainty.
Closely monitoring coven 19, as it relates to the company's business and we'll adjust as necessary as events unfold.
And finally be reminded that <unk> measures as indicators of financial and operational Fuhrman's.
Check your where we have it should do some you matchbooks this quarter, which are defined in R.M.D.N.A. is there not defined performance measures on dry for us, but we believe that they are useful supplemental measures that may assist investors in assessing an investment in our shared provide more insight into our performance.
Without on auction the call over to Angelo.
Thank you Camilla and thank you for joining us on the call and what kind of stuff and we hope that you're all well and say given the nature of this call will be focused on her financial and operational performance, but what we did not what we did want to start by extending or sympathies and best wishes to those directory.
Directed by the corporate 19 pandemic and to express our gratitude to all the healthcare professionals in front line workers, whose role in combating this virus is appreciated by everyone at all to screwed.
<unk> 19, the top of mine for everyone and we intend to covers implications on this on the call today I'll begin by for any reporter shed some light on how the pandemic started to impact or businesses in late March and how it may impact us going forward bear in mind adopted right of the eventual <unk> economic impact.
Pandemic on a commercial real estate sector remains uncertain and would emphasize that the full extent potential business destruction to not be known for Sir.
Monitoring this very closely and will continue to keep you apprised should any material events unfold.
<unk> is that we're coming into this period from a position of string underpinned by a strong start to the year, a strong balance sheet and sound business continuity plans.
This on strong footing to continue pushing on her grow stronger strategy in 2020 and to help support according to manage through whatever challenges lie ahead, and it's ever changing environment.
Well addresses further later and the call.
We'll start by commenting on her consolidated performance and then move on to specific business segments.
I'd like to point out that Jim Maddox has been classified as discontinued operations and then numbers. We are discussing on this call reflect results from our continuing operations only.
On a consolidated basis, our annual revenues rose, 12% to 131 million driven by 18% you're over your grows a property tax and 11% growth I told us analytics, where our overtime revenues were strong growing at 17% year over year.
Are valuation any <unk> cost advisory business grew by 4%.
Earnings per share from continuing operations of your eye for US were four cents well adjusted U.P.S. with 20 cents and adjusted EBITDA decrease modestly by 2% of 13 million.
Growth in revenues was offset by higher compensation from head count additions provisions and other operating costs, including incremental costs from the opposition's of 111 and Carruthers.
We're very pleased with our first quarter performance.
They're very productive and financially strong starts here.
Despite some short term challenges ahead due to cope with 19, we still see opportunity and an overall positive completion to the year as we'll discuss further here today.
Turning out to the individual segments.
<unk> Oh this analytics business, we began the year with the software business fully transition to a subscription revenue model.
Effective January 1st a license sales were sold on a subscription based is only.
While we are prioritizing selling Argus enterprise.
Nominally onto <unk> platform, we're so we're still giving existing customers the ability to purchase the on prime version for additional users.
<unk> consistent with what we shared with you in February the market and our customers have been very accepting of this model.
Or office analytics revenues increased 11% to 52 million of which the acquisition of 111 represented 7% of the 11% growth.
Most notably are overtime revenues are you metric for green rabbit consistent with our for US revenue recognition cruise, 17% on an organic basis to 40 million.
Key drivers during the quarter included the benefit from the higher mix of subscription sales in the second half 2019, and first quarter of 2020, which speaks to the higher economic value subscription revenues overall, we continue to benefit from a good mix of at ourselves to existing customers.
New life themselves as well as cloud migrations.
We continued to see strong growth from our appraisal management solutions coming from both coin expansion and new client additions.
Are maintenance revenues remained steady supported by a strong 96% retention rate for artists under price.
Note that at the end of the year, we will update our retention metric to also include Argus enterprise subscription revenue retained upon renewal and by that point, we will have the benefit of a more meaningful number of subscription that will be eligible for real.
And also eight oldest data solutions had a strong quarter across all important metrics revenue margins.
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In addition to introducing overtime revenues and formerly reporting on retention rates in the first quarter. We also started to report on a geographic mix of <unk> business, and we introduced a new crowd adoption rate.
The geographic split although we continue to make so it inroads in international market, we largely expect to split to remain study for the remainder of the year as we continue to see ample growth opportunities in North America.
Are transition of Oregon enterprise to the cloud progressed on plan and in line with our expectations. During the quarter is that the end of the quarter, 6% of our total Argus enterprise user base was contracted on the <unk> cloud platform.
Both new Argus cloud users as well as those who have migrated from the legacy on Prime version.
We think this is a solid number and within the range, we modeled when we laid out our long term for natural targets.
Bear in mind to date, the bulk of the cloud volume has been smaller two medium sized businesses.
Consistent with the expectations. We previously previously shared with you as those transactions are generally more strict straightforward.
For the larger enterprise deals, which Bob we'll get into shortly it's still largely a question of one <unk>.
The current environment could help accelerate this.
So all to say everything progress nicely and we're pleased to share that in mid April we hit 600 Argus cloud customers.
On the impact of Kobe 19, we did see some slowdown late in the quarter as our clients began to transition their employees to work from home.
Activities paused as a result of this move a slowdown occurred primarily in some of the non occurring nonrecurring areas or what we've referred to as one time revenues more specifically these where our software implementation consulting and the education and training areas recline availability became difficult during.
This time.
For the same reasons, we also experienced a modest reduction in software sales volumes.
Primarily in the S.N.B. segments.
I've customers shifted the focus to the to the work from home transition.
On the earnings front are merchants in Q1 were impacted by the shift to more subscription revenues reduction in one time revenues that we experienced as a result of covert and hired expenses related mainly to increased headcounts, notably in the software consulting category.
That was primarily related to the 111 acquisition that we completed in July 2019.
We're all going forward, we still expect that are spend will grow in proportion to revenue growth.
Margins are expected to remain consistent in 2020 and begin to see a rebounded 2021 as we highlighted at our Investor day. This past December.
Look you know be on Q1 co in 19 is expected to continue to impact.
<unk> analytics business in the short and medium term, but the long term opportunity a solid we continue to be well positioned to deliver a year over year growth in 2020, as we carry on with our transition to cloud subscriptions.
Our views supported primarily by all to send a letter overtime revenue base of 77%.
I think demand trends and our belief that are retention rates will be relatively stable as their solutions are considered mission critical amongst our clients.
For those reasons and the insights Bob will share. Shortly we remained we remain committed and are on track with our aspiration of long term goals to get to 400 million in revenues for four year 2023 with associated 30% or greater adjusted EBITDA margins.
To factor in cold blood related disruption. This is how we characterize some anticipated trends for 2020.
To start I'll reiterate that are standard growth avenues that includes expanding customer wallet share, adding new customers and geographic expansion for both software and appraisal management solutions will continue to provide us with incremental revenue growth.
We expect that the contribution of enterprise deals with our top 200 clients will also contribute to that growth.
These growth drivers are solid even if the volume's may not come in the levels, we had anticipated pre covert 19.
As mentioned with over 77% revenues being over time, we believe this rubber you basis fairly stable. This is supported by strong industry, leading retention rates and multi year contract.
And the fact that are solutions are considered mission critical in fact now more than ever are solutions or help inclined to navigate this challenging environment.
For that reason, we expect retention rate should be relatively stable.
Based on current trends, we remain confident that are existing customer migration to the cloud will continue throughout 2020 without material disruption and our current software pipeline of opportunity remain healthy.
Gang bobble elaborate further.
In the near term as a result of Kobe 19, and in some of the challenges imposes on our customers.
Two ability to work remotely short term challenges may arise in completing transactions within time frames that would otherwise be considered normal.
<unk> all of our customers are fully tack enabled so classic example of this as a potential delay of <unk>, even getting contracts approved as multiple parties are involved or in some cases, a customer reprioritizing because they're facing <unk> pressures related to this crisis.
We're doing our best for support customers and can already Tranzact remotely for instance, too I like electronic signatures.
Also in the near term some of the non recurring revenue streams. So just to technology consulting firm when 11 implementation education and training are expected to be impacted as clients as quiet priority shift during the pandemic.
That in person meetings are restricted.
We expect these services to resume to more normal levels as clients adjust to the to the new normal and as our services are delivered either onsite or remotely based on the circumstances.
And finally, our appraisal management solutions, which are captured in the overtime revenues are poised for healthy performance in 2020.
Business has been has historically been a beneficiary following times of market volatility as it supports the need of transparency and data driven insights.
We are fortunate that appraisal management clients are predominantly large institutional investors, who are well capitalized and who might see opportunities during this market.
Having said that we are likely to see a temporary slow down and you Klein additions in the short term.
But that could easily be offset by existing clients, who may add assets on her platform or simply require more frequent valuations and their efforts to assess risk.
Turning to our C.R.E. consulting businesses. It was a solid quarter of great great contribution from all.
Theory consulting revenues were up 13% 80 million and earnings improved 10% to 13 million.
<unk> tax revenues were up Omar we're up across most jurisdictions.
And both evaluation in cost advisory businesses delivered year over year revenue growth.
On the already inside the growth in revenues.
<unk> was partly offset by compensation for increased and headcount to grow the U.S. and U.K. property tax businesses.
In addition to reflect the credit risk introduced by Coby 19.
Hoarded additional provisions of approximately one and a half million.
Her trade receivables and and build revenue balances, which impacted margins this quarter.
A property tax we can to continue to see great returns from the investments we have been making in going this business globally and specific specifically from the digital transformation that's underway.
And the first quarter, you continue to grow market share, while building or pipeline with higher value contingency contracts and leveraging our data to maximize Klein success rates.
Donation of higher volume of settlements and greater individual value drove 18% revenue growth to 53 million along with 10 per cent earnings growth to 11 million.
And the U.K. the acceleration of K. settlements from the 2017 this <unk>.
Continued into the first quarter as we're now in the fourth year the cycle.
I should note that the U.K. government, just announced an extension to the 2017 cycles by what.
Hi, what's expected to be an additional year.
Which would provide us the opportunity to continue with annuity Billy into 2021.
This was just announced yesterday, so we're still assessing at school impacts.
In Canada, Ontario was higher as we returned to normal levels of K. settlements [noise].
We also experienced strong performance in Alberta, and in Manitoba as Manitoba is now at the peak of their two year cycle.
This helps offset some of the pressure we saw in D.C.
Experienced <unk> delay due to change and pre role assessments.
And then the U.S. consistent with our seasonal patterns, we had a very productive quarter and building or pipeline that will benefit us in future quarters.
With respect to cope with.
19 impact or Q1 property tax resolve we're pretty much secured by the time to to pandemic disruption was taking hold in late March.
We do have whatever see some impact in the short term most of which we would characterize the short term headwinds in 2020.
Longer term, we see attractive opportunities coming out of this as we continue to grow market share and maximize the value of our pipeline.
Fundamentally this business as stable as property tax systems are not anticipated to go away in fact, our property tax revenues are hardly repeatable as we have longstanding client relationships with an incredibly strong track record of success in our industry.
In response to Kobe 19 today, there have been some government relief measures introduced across a few of our jurisdictions to help businesses. During this challenging time for instance in the U.K. as part of the Kobe 19 subsidy program 2020 ratings for companies in the hospitality leave.
You're in retail factors have been suspended for all our client base is fairly diversified and we're not overweight and these specific sectors.
<unk>, we do have some exposure.
This change will have some impact to the 2020 annuity buildings and some other savings that we would have achieved from 2020 settlements for clients in these sectors.
In some jurisdictions local governments are also providing tax abatement and other deferral programs that may have some impact on the company's ability to invoice points, but generally this is small.
Greater risk in the short term is the ability for us to me and so cases with government officials either in person or remotely.
This is mostly out of our control and could translate into a slowdown in appeal settlement activity volumes that will ultimately shift some of our anticipated revenues into future corridors and it's a 2021.
The other risk I would point too is a potential for further provisions of are working capital accounts should the economic conditions worsened significantly.
This is mostly in the S.M.D. space within our property tax practices that have some exposure to certain industries segments as mentioned earlier.
Overall as you know this business generally exhibits quarterly variability based on the variety of cycles in jurisdictions and the quarterly variability could be even more pronounced this year as a result of covert 19.
But.
Based on the strong start to Q1.
Visibility, we have into our pipeline and the current pace of settlements, which still appears to be moving along we are on Dallas positive pretty here.
We stayed in our last report that we expected to achieve record revenues and property tax on 2020 and given the conditions are just outline we believe this target is still achievable.
Over the long term, we see great opportunity there is a healthy pipeline of both Ontario, and U.K. 2017, Appeals that will spill over into the next couple of years with volatility and property valuations that may lead to hire savings and coupled with higher market share should lead to continue.
Wrong future performance.
In addition to potential benefit of another year of annuity believe in 2021 in the U.K. could lead to another compelling year.
Bob will again provide more color shortly.
Moving onto our evaluation and costs advisory practice practices performance was consistent and we had and we had good contribution from both evaluation and cost advisory businesses.
We did not experience any <unk> any specific Kobe 19 related impact in the first quarter and as we look out we anticipate the impact to be relatively modest.
A significant portion of the evaluation business consists of periodic.
<unk> portfolios with regular financial reporting requirements. So we expected revenue stream of this business to remain relatively stable <unk>.
We could see some increases and valuation frequency, however, any benefit could be offset by lower our activities and the transactionally areas such as due diligence and research assignments.
The cost advisory business depends to a large extent on an active C.R.E. developer market, which could be temporarily stalled in the current environment. However, the long term opportunity of this business remains intact as many engagements or multi year. In addition, given district of our relationships and market leadership.
We have opportunities to be engaged for workout assignments and lender services should it come to that.
Turn into our financial position.
As mentioned, we entered this period from a position of financial strength.
And as reported today are balance sheet remains healthy.
Support a strengthening our financial position in late March we amended or revolving credit facilities to increase boring capacity to 275 million from 200 million extended the term by three years with an additional two year extension option.
Included other improvements, including greater flexibility more in terms.
No then you credit facilities are moving to an unsecured structure, allowing us to respond and adapt to the rapidly changing market environment with greater speed and efficiency.
At the end of the first quarter oldest groups balance sheet remain healthy bank that stood at 176.1 million.
Presenting a funded that even to leverage ratio of one of eight five times well below maximum limit a four times and that metric is without the application of cash in cash equivalents 71.2 million.
While we remain on solid footing, we will continue to meet our financial in operating requirements and prudently investing growth.
We'll also aim to contain and reduce costs were appropriate in order to enhance operating efficiency.
Well there are some obvious cost saving areas, such as travel marketing events and reducing non revenue producing hiring we will actively seek more compelling cost saving measures.
Like everyone else, we continue to monitor the situation as as any vault and will adopt or approach as required.
In the spirit of full disclosure there are risks things could get much worse, there are dependencies, such as counterparty out availability and participation in our property tax practice.
The ability of clients to pay.
The ability to close deals on a timely basis, the privatization of commercial real estate as a key investment acid costs, it's globalization and it's need for modernization it and automation automation.
These are trends that we believe are still in place.
In summary, we are generally feeling positive slaughter short term outlook, but still taking a measured approach.
With that on alternate over to box.
Thank you Angelo and good afternoon, everyone.
With Coven 19 top of mind for everyone build you know what Angelos shared we feel as the commercial real estate industry has changed.
The expectation for inciting transparency is increased to understand risk capture opportunity.
Digital transformation will be critical as our world has changed.
Data sharing in our industry will be pursued more aggressively.
The strong would become even more relevant to the industry and we believe these trends.
Tail with our solution set.
Our current position in this industry and allow us to accelerate our strategic plans.
Let me just quickly start by talking about our business continuity manager.
We discover discuss briefly at the A.G.M. yesterday.
Yeah I wanted to use this time to walk through where we see the opportunities ahead, because like in most periods of disruption and economic slowdown.
There will always be opportunities.
And we're determined to come out of this stronger than how we went in.
We pride ourselves at all to screw D.N.A. top employer industry.
A community and industry partner and a good corporate citizen.
This is definitely guided our response to this pandemic and reinforces our position as a leader in the industry.
Primary focus during this pandemic has been and will continue to be.
The health and safety of our colleagues.
And their families are customers and of course, it communities in which we operate.
Just to start we initiate are busy business continuity plant proactively in early March we acted decisively and quickly and in short order, we set up virtually all of our employees in all locations globally to work from home.
This was in addition to other preemptive measures that allowed us to ensure employees safety sustain productivity and enhance clients support.
Actively we did not Miss a beat.
I'm incredibly proud of how other team is transition and apply the reference to adjust during this difficult time.
Are transition to remote work arrangements was effectively Siemens with no client impact and we continue to maintain solid productivity and full service levels.
This was under paid by our operations being supported by modern.
Based technology.
For our corporate systems, and our client platforms.
Having invested in this area in the past several years, our internal and client platforms stood up to the test and.
And this has been a serious test and I'm really really proud of how we have entered into this new normal.
As Angelo highlighted although wearing good financial shape.
Then the spirit of never letting a good crisis go to waste.
And to ensure we remain in the best position possible.
Taking this opportunity.
To further optimize our operational efficiencies.
Especially as we prepare for the next normal in the afternoon math as a pandemic and the economic slowdown.
While our focus remains on growth.
The current environment.
I'll allow us to better realize efficient growth.
This is a proactive approach to target our spend on new and emerging opportunities.
To be Claire are planned investments in support of our <unk> strategic initiatives will continue <unk> as it relates to eliminate where no rush, but given our financial strength, we remain open to opportunistic transformative how many opportunities.
Could become available.
No doubt coven 19 has presented unique challenges for all businesses.
Precise impact on commercial real estate remains to be saying I think effects will vary significantly by market and asset classes.
Some companies.
Such as those of higher exposure to hospitality and retail for instance.
Obviously feel pay more than others.
And there are those who are well capitalized as structured and it continue to have plenty of dry powder.
They will be opportunistic.
There will be hardships and there will be opportunities are.
Our software data analytic solutions.
Experts services.
Are uniquely suited.
To help our clients navigate the complexities in this on certain environment.
One simple example.
We just ran a web backs seminar on sensitivity and risk analysis on Arcgis enterprise.
And we had over a thousand registrants.
That has been one of our highest turnouts yet.
We're here for our clients and the industry.
Both ends of the spectrum.
This is reflected in our mission.
To enable clients to maximize devalue other commercial real estate assets and investments.
In a way there's more modeling weren't taking place on August whenever.
There's a heightened focus on valuation as it relates to our property tax business.
Operating costs are being scrutinized now more than ever.
And especially in the near term.
Client focus will ship for returns.
To risk in cost reduction and our solutions solve for all of the above.
Like our team rose to the challenge during this crisis or proactively engagement clients.
And maybe on a more personal level, creating even deeper relationships.
We're here to help her clients to have a gators period of uncertainty, but we're also thinking about what their needs will be in a post cove at 19 will I.
I believe that the tight touch points rabbit with all of our customers today.
Strengthened client satisfaction and loyalty.
In times of crisis, there's always a flight towards quality partners to deal with companies and people They can trust.
And towards those who will have influence in our industry.
And that is all to screw.
Given our corporate culture.
And the exceptional quality of our professional is quite frankly productivity through remote work arrangements was never in question for me.
We are busier than ever we're supporting our clients. So they can get visibility on risk and opportunities.
Fighting thought leadership on the industry and renovating with new relevant offerings of pursuing opportunities to grow market share.
I'm confident that with the talent across organization.
We will emerge from the covert 19 crisis, but to strengthen competitive position.
And as we have done through a wide range of economic cycles in the past.
That also Santa Linux, if you take a logger channel view, we believe the pace of digital transformation, a month's commercial real estate companies.
Can be accelerated due to current work from home practices and data sharing requirement, especially for those companies who are late to the game.
The technological mater is modernization of the <unk> commercial real estate industry has been a dominant tell when for business and this pandemic has <unk> revealed operational disadvantages for companies, who haven't invested in technology.
Being cloud enabled has particularly provided a lot of advantage to our clients.
In this time.
Not only because it enables efficiency.
Especially while people work remotely, but it also enables better collaboration.
And based on a conversation, we're having with our clients.
Just has grown.
As we reported today are Clyde cloud transition progress well during the quarter and remains on track and based on the trends, we expect that the migration of our existing customers are cloud will continue throughout 2020 without any material disruption.
But six per cent of our total Arcgis enterprise user base contract that on our is cloud and with over 600 customers on the platform. We are pleased with a progress.
This this includes both take up from new clients, but also migrations from existing clients, who proactively wanted to move over mid contract.
For contacts for contacts were roughly nine months intense our full lunch and we went from reaching 500 customers. The late February to reaching 600 customers by mid April and as another reference point.
It took us two and a half years to get to 600 customers for artists on demand.
The value is there.
Overall.
Testing with our expectations.
The early adopters continue to be the largely from that somebody customers.
Who generally represented a handful of users.
But we're also enjoying positive engagement with a larger firms who would represent higher volumes of users.
And for the larger firms they said, it's a strategic and consideration now for many of them.
Some other accelerate the decision in light of covert 19, and others may temporarily postpone strategic technology implementations.
Reasons, ranging from competing priorities.
To caution about new spend decisions in an uncertain environment.
We're watching this cause play and it will likely impact as some be spending more.
But offset in time by the greater opportunity with large and global institutional companies that are planning for a more modern platform.
And he's short term impacts and software <unk> software should because cushion fire now greater than 70% over time revenues.
Customer retention levels and the demand for our data and information along with a strong performance of appraisal management and all those data solutions.
To that point, we're also experiencing strong engagement with our appraisal management client, who are leveraging our data analytics platforms and leaning on our experts to help them assess Rex risks.
Count for impacts the evaluation.
And valuate opportunities.
There's nothing like a crisis to stimulate the need for transparency.
And in fact, the last financial downturn in 2008, and 2009 was the key catalyst for growth of our appraisal management solutions and we can see that happening again this time.
In 2008, 2009 commercial real estate values decline around 40% from their pay who was painful for clients.
Some of them breach death, covenant and L.T.V. caps has volume decline.
But they all survived in recovered.
The net result was an overall increase in demand for our advisory and and a lot of analytic solutions.
As clients and their investors called for more transparency and tried to get a clear picture of the overall volume performance of this they're holding.
There's no reason as I said to believe it will be any different this time.
And then or Canadian alters data solutions, we've recently signed important new multi year contract that strength in this business.
That's true the launch of all those data studio platform, our customers I've improved that can be more efficient and getting access to our data through these tools.
Overall, I'd say the need for transparency has been heighten in the current environment as customers analyze resscan, we visit evaluations.
A number of our solutions are considered mission critical for our clients.
And we believe that the current events will elevate.
The strategic value proposition of our full text stack for global asset and investment management.
<unk> property tax.
Despite some of the near term disruptions.
That we've seen from covert 19.
Are very optimistic.
The overall health and potentials is global global business on a multi year basis.
Or revenue expectations for 2020.
I've been tempered from the exceptionally strong levels, we're anticipating at the start of the air.
But we believe a record year is still achievable.
The combination of the strong started in the first quarter.
Plus the visibility we have in the pipeline and the current pace of settlements has strengthened our confidence considerably from the early days of government headlines in actions.
It may not be a phenomenal year as we were headed for but it will still be a very good year.
Over the overall the property tax businesses stable.
Regardless of market and economic conditions.
Requirement to pay property taxes doesn't go away.
This business thrives on market volatility.
And we have certainly have that.
And we have potential to do even better in a downmarket as clients become more focused on expenses.
As property taxes represent one of the largest operating expenses and commercial real estate.
The complexity evaluation.
Given covert 19 against the backdrop of uncertainty will also create an opportunity to increase the value and the success rates for clients.
Or high contingency model creates a win win.
Now if you take a logger channel view.
Could be further opportunities created by this disruption in future cycles.
Or potential for higher at that wins in the next cycle strengths strengthens drawn on our experience in past market disruptions.
It's always been the case.
The impact we're seeing in 220 20 due to covert 19 also creates more opportunity for 2021 has the coveted related disruption and appeal settlement activity volumes.
Well shift some of the anticipated revenue.
Future corridors and further spill into 2021.
And this spill over.
Is likely to be higher than we what we initially anticipated creating opportunities over the next couple of years.
In addition.
We're really pleased with yesterday's announcement that the U.K. government plans to postpone the proposed business rates reevaluation and 2021.
This is a big victory for United Kingdom team.
Who've been leading this charge on behalf of the industry to protect our clients interest and work with the government to get it right.
This is a huge when for clients and reflects our thought leadership.
These type of activities enhance our overall brands and value of our business and well ultimate lead to greater market share.
And it also has some tactical benefits, including an additional annuity potential more time to process the existing pipeline.
And potentially an additional year to add to our 2017 list that we file for that pipeline.
Have given our global scale and how technology naval we become over the years.
You will be more than favorably position over many of our competitors.
Especially as we look at the U.S. market.
A fragmented small world market the weakness of small companies that have not modernize will be obvious and we're already seeing layoffs in our industry.
In fact, we're adding to our team.
The news travels fast and fired to our client base and then you actually have a significant opportunity to continue on the market share gains we've already made.
All this is positioned to build loyalty with both employees and clients by being a stable either in the market and potentially adding to our talent.
It's also gives us an opportunity to continue our great success in Canada, gaining market share and there could be of course, some attractive talkin opportunities had in a turbulent market.
Oh good.
An overall the strength of the 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 steady annual revenue growth for many years and I would echo <unk> Angelo said earlier.
There.
Our digital transformation and our moved to make tax more of an information services business is in creating incredible value as we build this global market share.
So in closing.
Number one.
<unk>, our employees and customers or a top priority and our actions to covet 19 pandemic have been guided by prioritizing health and safety.
Our business continuity measures have been effective.
And we've achieved a great balanced in doing right by employees, giving them added flexibility, while being able to continue to serve our clients with a high level of service they expect from us.
Number two we answer this period from the position of strength.
Already having already made our transfer transformational investments.
And with a solid base of overtime revenues in her office analytics business.
And in our property tax business, which is stable and a high majority of our property tax revenue is highly repeatable.
And of course as a company, we're highly diversified by revenue streams and by geography, and we have a strong foundation of longstanding blue chip client relationships.
Number three.
We deliver incredible value to our customers.
Type of difficult period will challenge revenue streams, but are and to N.C. Erie off range drive better decision, making for our clients, helping improve the visibility and flow of information through their <unk> their critical business processes to <unk> maximized the value.
You have our commercial real estate of their commercial real estate assets and investments.
Our clients are facing both unprecedented challenges and opportunities in the current environment.
And strengthening the long term demand for our clients and cloud based solutions are data analytics, and our professional services and our people across every one of our businesses are incredibly busy supporting our clients in guiding them.
Through this pandemic number for the long term fundamentals of our business and the market opportunity ahead of us.
Aren't even better than ever the pandemic creates some short term headwinds.
I'm looking beyond we see exciting opportunities ahead, and we will we will be very favorably position.
In this crisis, many clients have turned to us for our insights and data to help them plan for their for their own business.
This should accelerator differentiation as we come out of the stronger on the other n.
As we have done to a wide range of economic cycles in the past.
And number five.
The company is in good financial health and we have numerous leavers available available to us enhanced financial flexible flexibility should circumstances change.
We remain laser focused on market share.
Organic growth.
Maximizing cash flow.
Innovating, while taking this opportunity to contain and overtime reduce some of our costs through innovation.
We're well positioned to execute on her thesis.
This year and for many years to come.
And with that said, let's open it up for questions operator.
Certainly.
Ladies and gentleman, who have lost their questions from the telephone lines. If you have a question and you are using the speaker phone cues lift your handset before dialing your selection.
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<unk> one on your telephone keypad, if you have a question at this time.
Question is from Daniel Chad T.D. Securities. Please go ahead your lifestyle.
Hey, Daniel yet.
And that some customers may accelerate their migration to the cloud as a result was a pandemic and some may be taking a pause given the uncertainty.
If you can't give us some insight on what you're seeing in the pipeline and maybe some think h. I think you're having with the customers are you seeing more in bells for the clouds, given the work from home directory.
Yeah, I think I take what we're seeing is that we had a really nice clip going on or a small medium business.
Which you know it if you if you think about are traditionally O.D. business. It was it was at the beginning also a weighted to that to that business you know that category in the last so I would say about early.
March we started seeing pickup in what I call him medium large business you know the plus 20 users and and that was you know one of the things that were hoping for it and when you get into those once you get into those sized businesses and obviously large enterprise, it's it's actually less fulfillment and we're selling and so.
We're selling paradigm, we're starting to kick in and that's going to be important for user adoption right and then of course and the larger enterprise is you know so much more.
Complex sale, because you know we're talking the global companies about how this fix sent it fits into their environment and that pipeline is has strengthened.
In a number of deals that are in in our in our in our pipeline that are still proceeding, but look we're trying to be a little bit cautious here right, there's going to be a lag effect on how real estate companies behave I think all software companies have to be concern.
Turned about booking so we're we're trying to buy a little bit a room here, but the thesis is intact. You know we've got a really nice pipeline, we'd probably be we'll see some delays are just naturally because of what's going on in the pandemic, but the thesis hasn't changed.
Okay. That's helpful things and then moving onto a tax side you also mentioned that.
Taxes or one of the highest expenses for your clients, so and and and.
Maybe looking to save those costs are you seeing and acceleration of tax appeal plans from your twice now.
I would say that there's a flight the quality going on that's why we're so bullish on tax or our market share our pipeline or in value.
Our ability to organize to when new customers.
You know that worth that we've done in transforming the way we do business. We we actually feel and this is strong like or mobilized were operational we're moving in and many of our competitors are fairly flat footed and or taken the high road. So not only where are we doing well on pipeline and you know as men.
By assets under contract and customers. We think this you know because of the investments. We made you have an opportunity even accelerate our market share and and the uncertainty valuations they ability.
Opera your business on a modern platform is is a an advantage to continue our business and again reiterate that we are going to have a very strong year. This year.
Okay and can you come from the ability of the courts to get tax appeals to settle though they still processing them or is it all being pushed out no. It's jurisdiction by jurisdiction. Then you know I actually want to jump in here, a little bit because you've been doing a bit at work on on that yeah.
It does depend on jurisdictions m- most of them have been.
Continuing to it's a process I mean I'll be.
Than normal so for instance in the U.K., they're they're still settling cases activity levels are down a little bit just just because but like there's so proceed ontario, how to slow down a beginning in mid March that that's probably one of the only a jury.
Sections, where we saw a drop off on activity, though the others are still continuing and we're starting actually to see.
See a bit of a resumption, Ontario is planning to come back sort of in in this month in may.
And we'll see a resumption you know going into the second part of this quarter.
I I need a benefit for us Tonight.
It is that.
You know, we should you know where we've already declared that 2020 is going to be a good year.
But more and more you know there's a whole bunch factors here that are winding up 2021 to be exceptional not only you know Bolton both in terms of the the way.
The economics of tax of shaped up our competitive position, but also some of the actions and put in the U.K., where if they you know go back to the differ a loved one year. It creates a real smoothing and if we look out. The next few years. The here we are worried about last 2021 with a.
A little bit of a fallout and now looks like it strengthening so like we're not declaring on 2021 now or on 2022, but the business I'll check is lined up that a hell of a run by size, we won't have the historical variability extreme variability that we had in the past in the U.S.
Is really coming on in the U.K. is there in Canada continues to be good it to the business isn't really really good shape.
Sounds good thank you.
Thank you.
The next question is from.
Macleod at B.M. loan.
Go ahead, you know and there's no <unk>.
Thank you could evening.
Hi.
Hi, so lots of gray color on.
Thank you, but I just want to follow up on a couple things can you talk a little bit about it like in the press release, you talked about 2020 kind of falling below what your previously thought is there any way to quantify like what what what you built in to your assumptions so far.
I think the only allusion to that is around tax and if I'm not mistaken Angeles flipping the truth [laughter]. We're all looking at it I use quizzically here. We we made comments in that prepared remarks that you know tax was had it for a phenomenal year, it's still going to be a very good year right.
And so we're trying that we're trying to make sure that we guide that appropriately obviously.
And you know I I think I think we're going to even have more clarity coming out of Q2 on how this is going to play out so so, but but then and then the only other thing.
You know we might have been you know if I I answer the question without referring back to the contact for the press release, obviously when you have a pandemic like this and you have winners and losers.
We we will get more clarity in the court court. It goes on on on behaviour buying behavior around our all to Santa Linux business, but but in the short term, we're seeing lots of activities. The the metrics are good but you know there's gonna be I'll, let you know we expected.
Going to be a lag and real estate and we don't know exactly how those behaviors are gonna fall. So that that's really what we're guiding on right now for me at the guide in in in normal year it'd be business as usual.
Right. Okay, though so you can't have based on the metrics. We have today just to make sure you understand that we don't have a we don't have a we don't have a a huge deterioration or metrics I remember yeah. You just have to see somebody just want to make sure you understand the point.
We're seeing some of these real estate companies are under it's a serious duress right and so so the metrics are strong you feel good about the business for guiding well on tax you feel okay. About you know the medium term for office analytics, but we also on offer some caution.
Right. Okay. No. That's that's very helpful. And then maybe just maybe just secondly, you talked about 6% penetration rate.
For clout, Yeah, how do you expect that to Ram going forward like how was that make it a minus how was that ran previously assumed.
Your guidance to gets 20 <unk> 2023.
I tried for 2023, I'd, probably I had a little bit had a lot of this planning to internally in turn all right I remember, 6% off mostly S.M.B. customers as we kick in some of the larger customers because it's a user base metric, you'll see corners, where it jumps up I.
Friendly and so in our in our planning you know we we we felt that you know the first year. The first part of this would be you know more waited too you know an S.M.B. kind of ramped approach and then if you put a large you know sort of what they call. It services company on it or one of our large customers.
It'll have an impact in the corridor. So so not we're at we're happy with that metric right now.
Okay, that's great and then maybe just finally.
Correctly.
I believe Los Angeles comments did you say that you expect.
Margins to be roughly flat year over year.
Yeah, consistent with pretty much with how we guided didn't back in December so yeah. They should be pretty you know they'll be in that range that we had provide earlier.
Okay. That's that's great. Thanks very much.
Thank you.
The next question is from paltry.
D.C. capital markets.
Please go ahead.
Oh. Thank you very much good afternoon, just one to clarify last couple comment in terms of the oldest analytic reaching that a longer term target you had a a a graph that shows the progression of wrapping you over the next couple of years do you think you're you know where you stand where you look at the year.
You're on track to cheat, it's hard to come next couple of years, and it's not becoming more I can't wait it.
No the only the only thing that's happened Paul as we saw obviously he's toleration on one time revenue right training professional services.
And you know that that is off you know we went to factor that into our long term plant at the actual more important you know overtime revenue is is on track and we expected.
Operate you know it was 17% in the corridor might have it probably would've been a little higher than that.
You know had we stayed the course.
But but the you know if we didn't have covert 19 sort of little bit of pressure on that but but we're going to be we're going to be you know like relative to our articles where we're on track on overtime revenues and.
Since April long play out there might be some impact on the one time revenues and where that's one of the things that were or or monitoring cause that that that guidance includes both right over time and and the one time revenue in the corridor, but by the time, we get out there one time revenue will be fine.
Okay.
That's helpful. The you sound very competent in terms of renewal raised from meeting stable.
You know what keeps he's a competent there you know I don't know.
Based on your conversation hide or they just in nature usage and then could you.
Point back to what you saw in 2000 8009 in terms of renewal.
Oh that trying to about that.
Well the reason, we feel confident as because of the value of the software, but there's also a little trick here, we do a high percentage of our renewals at the beginning of the year and they pay up front. So we're not going to give their money back. So so that that timing is pretty good and that was a little bit of of.
Slip in combination to me that one.
But the reality is that you know we we we are expecting that sort of you situations, where we got to help clients out, but you know so far we haven't seen a lot of that.
And.
And and so and in 2008.
I think we looked at it you you have that go ahead Angela no. We we we didn't see significant drop off even in 2000.
And that was before we actually had.
Software because it was DCF, but yeah I was D.C.F. It was you know single I said kind of solution.
What we're talking about today that very different kind of product in that very different installation.
And and it's much more entrenched and it was even back then so you know there there would it there was a small drop off I mean, there was a modest one but we're [laughter] this time around.
We we really don't have any expectation of that.
And then just even on on the subscription deals are one thing I'd point out on on that recurring revenue base. Most of most of those contracts are multi year contract or 90 them and you will you know just north of two thirds of those contracts will extend out for another at least for a couple of years.
In most cases and so we're that's why we feel pretty strong about you know our our position on renewable rates yeah Oscar for for the most apart you feel a lot of more locked and and at our our our pricing policies on maintenance, which is where you might you know see something.
Slippage is that if a customer castles or maintenance half the repurchase the product and you know that's not something that people want to give up easily right had it would force and immediately if they did come back into our cloud paradigm, which we'd be completely happy with.
Just one last question <unk> your investment plans and simply cost reduction plan.
In the light you know hold it in any given the opportunity and double down investments.
Or as an afternoon shift some discretionary spending and to other other areas.
I think it's <unk>, what we learned about work from home creates some opportunities I, we've had to change some of our models in terms of selling paradigms.
That we found to be fairly efficient you might see a different form of marketing you know less expensive more frequent.
You know, we we are repositioning or thinking about how we can set up service shared service models. There's a lot of things that you know we we have observed have created better value has we got forward. So you know these are all things.
You know could create a a better economic model.
Thank you.
The next question is from G. pack, so huge that just be from G.M.P.L.P.'s go ahead.
Some open.
Oh, Hey, guys. Good evening things, we take my question.
<unk>.
Hey, guys.
<unk> on analytic I just had a quick question.
On the large enterprise side versus S.M.B.
Sense of of this split on on seats or licenses between large and M.S.N.D. are we talking like 64 years 70.
30.
A large enterprise in terms of volume and heat.
It's it's a bit more complicated than that because the.
Wow no is the answer [laughter] not not over the phone that that easily.
The the.
The.
Probably if you train related.
<unk> and I'm I'm, I'm, probably I'm, probably on a limb a little bit here, but it's probably like 40, 40, 20 or 40, you know say top hundred customers in the World 40 next 400, and then 20 on SMB something like that you know if if you took I.
You know rule of thumb deeper so.
But it and so so it might understand correctly that called trendy and started off faster with that that'd be slower large enterprise, but you expect that to slip you to cope with because.
The need for clouded is stronger for large enterprises that is about the correct interpretation Oh, no what I. What I said is that we're we're now entering into the period of the transition while we're starting to get you know large medium and lower large customers and we've got some good engagement with large is that it's no change.
You know, we as they as the product strengthens hand gets you know materially ready for a large enterprise then you will start kicking in our guess as a global enterprise solution right. We're only whereas three quarters intercloud have morally seeing new functionality every quarter right. So it's kind of.
Strength and we always knew that we knew we start with S.M.B. A we're now now move enough to large medium and lower large clients and you know 20, you know, they're 20 plus type of users and and then we'll keep it going from there so that the thesis hasn't changed.
Okay. So I mean, I don't I know, it's gorgeous pacifics here, but just last question on analytics pull up on the large enterprise did you. The you know the big large enterprise did you have a certain number that you want to close this year and has that number changed either up or down that you could close this year.
I think it's.
I just finished my board meeting they asked me that question exactly.
I wouldn't say and stuff.
And the answer was yeah, we're not we're on track. We're we're not I'm not worried about that metric the real the real play a few of Herve talked about this before.
As you know can we get at the upside this year right. That's a real opportunity we've always close.
Oh, four or five you know good size <unk> deals every year.
You know and I don't see this year being different based on our our pipeline and I'm pretty active in most of them.
And so the question is couldn't you know as covert 19 going to slow down the up side.
You know so you know and we.
<unk> you know, we're not we're not well I think we're painting here you know not just for you for everyone that we're on track, we feel really really good but you know.
A real estate commercial real estate customer bases not completely settled down right. So we're not trying to make we're not trying to make it look too easy, but all the metrics are very positive right now and where you know confirming our direction and you know Q1 was pretty good and you know we've got a few we've.
Wanted to highlight where the rest card and right now and also Santa let extra risk is is really around or bookings like every software company and a one time revenue.
And you know, we're not hiding away from that we expect to work through it and we think you know we think the eventual outcome is is positive.
Thought it and then just on that long term structural change and real estate like we hear a lot about hawk on permanent worked for the whole more private.
Space have your expertise really kind of form to view on this on this.
Trend that ended that impact.
<unk>, Okay, I can't resist so I ask Rick Kalvoda.
Who who runs our advisory business globally.
In case, we got a question like that to give us a few minutes on why his customers are saying about the changes and their customer base. So wreck over to you [laughter] yeah.
<unk> Yeah from the office side work from home I think that'll still kind of flesh out over time, you here kind of both sides of it you here you know that people are finding more and more that they can work from home you might see it increased and number of people doing that you also see just from office use perspective.
When people do go in the office, they're going to want more space you know to work there. So there may be more demand. It and this is from the commercial real estate sides to for office more demands for office space. Overall I think on the margin you are going to see more people working from home, maybe not permanently but on some rotational basis.
So that will increase the need for <unk> for for software for Argus Clout force ways of working remotely whether it's you know us whether it's our clients whether it's just people in general and that bodes well you know for what we're doing so no.
Definitely looks positive I'm from that perspective.
Yeah, and I think.
Yeah.
They have questions are set up quick [laughter].
No no, but basically we invited him along and we we also have calling Johnson.
<unk> evaluation in Canada on on the call if anyone's interested in getting insight into our customer base and and some of our activities. The the other interesting thing is like honestly Deepak nobody really knows I think that's part of the reason that were taken a measure careful.
View of you know how our customer base is going to behave. So for example is you know if you have to keep you know physical distancing in the office level for you know the next year that has flow through on restaurants hotel hospitality retail so you know.
The people are you know working hard to understand that but it'd be a if you think about it and I've said, there's before men have much of our client base you know the large client basis institutional they're taking it a long term view of how this goes goes on and people might be starting to think about this in the contract up land banking or land accumulation.
You know hospitality has never been lower or one of the biggest p. firms in the world May add there their best deal ever ever ever was was Hilton.
And.
And so you know people are going to have pieces is coming out of that had those thesis is create demand because they need to use I I mentioned sensitivity thousand people on a web backs <unk>.
Just how much people are thinking about really running scenarios right.
Thank you.
The next question is from Richard <unk> National Bank Financial. Please go ahead, you're line just I'm open.
Yeah. Thank you.
Talked about a acquisitions here that there could be some opportunities that surface here in the short term I guess, the first questions, they're leaning one way or the other like X. technology and yeah. I guess the related question, where we're just see the most operating from evaluation perspective.
Yeah, I think I think what we're showing a short term or.
Overweighting technology, we're looking at something.
Scenarios at setting fit into our longer trying to strategic plan, but but honestly as I think Angelo said, we're not we're not in a rash, we're not going to just by because there's about you know bargains to be had always for US is you know critical that we get culture and strategy value.
So you know I I didn't mean to imply that were they got a bunch of money and we're getting ready to spend it but there is more opportunity in this market and that right behind that.
I think and then medium term I think some of these you know second tier.
Tax companies could could be under pressure and I included in the second tier everybody, but us so so.
So we we we think that that's an area that where you know we <unk>, we would be opportunistic on hasn't played out.
Okay, and then just sort of going back the the cloud transition for large enterprise.
What would you say like the one or two top gaining factors to have use large enterprises make that conversion.
Yeah, I, if I said it before having spent last.
You know 25 years in my career selling to large enterprise. It gets harder every year right. It's contractual all you have to put hit the buttons of I.T. security you Gotta getting your capital programs lined up you got to be in their budget. It's got to be part of their strategic decision, making it got it can be for other capital priorities right.
It just takes time and so we knew that we have we have you know great conversations in play and we have the value that moves that along right 10. So so again the in the early days you know we'd pick we have a good line of sight on.
Our existing customer base.
That you know could could actually have large customers that could move over and we're we're actually pitching particularly in Europe on to some of the large large players about the benefits of globalization. So so we're on track is like that hasn't changed you know if anything too.
My point like every other software company.
You know the one one thing about you know a crisis like this a pandemic as it usually puts pressure on decision, making right. So again, we're we're we're being pragmatic.
Versus you know anxious here.
Even ourselves some room for the reality of the situation for customers, but but we're not shying away from saying, it's going really well and we figure that.
We're going to we're going to we're going to be fine on the on 2020 and as we go forward.
Okay, that's awesome.
Thank you.
Once again huge pressure scatter one if you have questions at this time.
I don't know for the questions <unk> I would like to turn the <unk>.
Okay, well thanks, everyone.
Again be safe.
It's more fun when we get to meet in person I can honestly say that but look at all all finished by saying we we continue to appreciate the support of our investors.
The investment community I Love, what our team is done I'm proud of them I really believe that this is a game changer for our company. We have so many different opportunities in front of us that frankly I've been accelerated again.
We want it to offer some caution around that in a short term.
But you know this as an opportunity for growth innovation and market share thanks for joining us.
Thank you.
Gentleman your conferences style ended all callers restaurant up their lunch at this time. Thank you for joining today's call.
[laughter].
[laughter].