Q2 2020 Altus Group Ltd (Ontario) Earnings Call
Good afternoon, ladies and gentlemen, welcome to Altrus groups second quarter Twentytwenty financial results Conference call.
During the presentation, all participants will be in listen only mode. As a reminder, this conference is being recorded.
I would now like to turn the conference over to this could millibar Toshiba. That's please go ahead.
Thank you my call good afternoon, everyone and welcome to all this group second quarter results Conference call webcast for the quarter ended June Thirtyth 2025.
Hi, My friends our earnings results news release issued after market close this afternoon and it's also posted on our website along with our I'm DNA in financial statement.
He's visit also scoop Dot Com 15, these documents and for more information.
Joining us today, Bob Cook, how Chief Executive Officer, Angelo Bartolini, Chief Financial Officer, who will start with some prepared remarks, and the move right into the queue in a fashion.
We Miss any questions. Please contact me directly by email.
Before we get started please be advised that some of our statements and responses to questions. On this call may contain forward looking information.
Forward looking statements are based on managements current knowledge and expectations as of today and are subject to certain risks and uncertainties that could cause actual results to differ materially from those forward looking statements.
Also please be reminded that office good uses certain non-GAAP non <unk> for us measures as indicators the financial and operational performance forward looking statements and an explanation of these measures are detailed in today's press release and in our related reports a feeder and I'll now turn the call over to Angelo.
Thank you come a lot and thank you all for joining us on the call and what cash this afternoon.
And what are the most challenging periods in our history. All this group put up a very strong second quarter actually the best quarterly revenue and earnings performance in our history.
The news were up 9% 255 million and adjusted EBITDA was up 16% to 35 million driving a 22% improvement to adjusted EPS at 62 cents.
The strength in the quarter was driven by record revenues and earnings that property tax and sustained strong double digit digit growth in our overtime revenues at all to sign analytics, demonstrating that our core services and analytic solutions, our mission critical and that our core business is solid and resilient.
What are the most recurring questions investors have had about our company is how we might perform in a market downturn I believe that are second quarter results have answered that.
Validating that we have a strong and stable revenue base across various economic cycles I see this is a legacy quarter. One that we can be proud of and point to as an example of art resiliency.
Turning to the individual segments, our oldest analytics performance remains on track for our multi year transition to a primarily overtime revenue model and shift to a SaaS enterprise.
Reflecting this shift all just analytics revenues were up 2% to 51 million an earnings were down 14% to 10 million.
But no most notably overtime revenues are key metric.
They were up 18% to 43 million.
As you'll hear from Bob today, we're making steady progress against our cloud SaaS subscription strategy and as we look ahead the acceleration of digital transformation in the CRT industry is a positive catalyst for long term strategy at our aspirational goals.
As you're aware at the start of 2020, we made the full shift to subscription model for all our August software products from a hybrid subscription and perpetual sales model.
Simply put more of our Q2 revenue last year had upfront perpetual license revenues, where the full price of the license was recognized upfront.
Versus today, where the turned value of the subscription license is recognized over time.
Although this change creates a stronger long term economic model the transition, particularly impacts overall revenues in the first year of transition, but has a positive effect on overtime revenues.
Top line revenue was also impacted by some of the cloud related pressure on onetime revenue streams.
So just software consulting and training services, which were down year over year on an organic basis.
Pandemic also had some impact on software sales, particularly in the SMB space and then prolonging sales cycles of some of our larger deals.
This was mainly a factor acquired priorities and focus shifting during the pandemic.
And as they themselves.
God organized to work remotely.
Despite these headwinds our revenue growth and transition is proceeding as expected and there is a strong and building story.
At this time, 83% of all this analytics revenue base is overtime revenue.
A solid improvement from being in the mid Sixtys, just three years ago, and well under way to reach reaching our goal of getting to 90% by the end of 2021.
Some key highlights for the quarter include the following.
So strong software subscription revenues as a reflection of both current and past deals.
Helping new subscription license sales, including a significant renewal with a strategic global service provider unimproved, an expanded terms that further and trenches AG as the standard valuation management solution and sets us up for sustained future growth.
Although our sales taker for larger deals has somewhat like that links and as a result of the pandemic, we have visibility into a number of large strategic enterprise deals over the coming periods.
Our sales execution will be supported by our product road map that will further develop out our cloud capabilities and cloud transition, which Bob will touch on a little later.
Our main or maintenance revenues supported by an industry, leading 95% retention rate for Argus enterprise.
We expect our retention rates to hold in the mid Ninetys range as the demand and use as a he remains high.
Overtime. This revenue will transition to subscription revenues as cloud adoption takes hold.
Our appraisal management solutions remains strong and our an ever increasing demand, particularly in times like this.
We have signed a number of new deals in the past few quarters with both new clients and existing clients with new funds, particularly with pension funds.
Our clients are very interested in the very unique aspects of our solutions, particularly on the analytics and performance capabilities that we provide leveraging our data exchange platform.
And the adoption and at our Canadian data solutions segment, we had good growth this quarter as that pandemic has highlighted the need for national data.
We have done more deals with clients for national data in the past six months.
Well, then last year and continued to made great progress migrating our users to our new office DBS studio platform.
10 of our largest customers have already migrated to benefit from the improved data visualization and analytics capabilities.
On the earnings from our 19% margins in Q2 reflect the initial shift to subscription revenues and the higher level of expenses compared to last year, mostly related to software consulting, including the impact of 111.
So we saw some offsets come through as a pandemic dropped dramatically reduced travel and we had to cancel our in person Argus connect conference in April.
Also worth pointing out with our software training and education revenues down we were still carrying the cost base.
So we look ahead.
We feel comfortable with the outlook as the anticipated Coburn 19 trends that we outlined on our last earnings call. It may remain unchanged.
No doubt Kobin 19 will continue to impact our business in the short and medium term, but the long term opportunity remains solid as you'll hear from Bob today.
We continue to be well positioned to deliver a year over year annual revenue growth in 2020, as we carry on with our transition to cloud subscriptions.
Our view is supported primarily by Altice analytics overtime revenue base up over 80% healthy demand trends and our belief that our retention rates will be relatively stable as our solutions are considered mission critical amongst our clients.
[music].
Moving onto the CRD consulting segment. Another solid example of excellent execution during a period of disruption.
Our global property tax Big business continues to be aren't a multi year wall with strength across all of our national markets.
Revenues were up 18% to 77 million and earnings were up 19% to 34 million.
The strength of this business goes beyond a single market and beyond in us and beyond being in a sweet spot of any given cycle.
Although our performance still exhibits some quarterly variability this quarter be no exception, our revenues be becoming more stable AG balanced as the growth across all are national markets is helping to smooth out some of the peaks and valleys, especially when you look at it on an annualized basis.
We have been steadily growing enhancing this business across a number of different internal capesize and this success this quarter reflects that.
For instance, our success rates remained strong amongst the highest in the industry translate into higher savings for our clients.
Our market share by volume and value continues to grow and dominate and many jurisdictions were in.
We are by far the leaders in Canada, and the UK and have a significantly growing presence in the U.S.
Our settlement volumes continued to improve and most jurisdictions.
Our pipeline continues to grow and is higher on a year over year basis, not just due to the volume of files on hand, but also reflection of improving pricing terms and values per appeal.
Our business development initiatives continue to be very impactful and contribute to the growing pipeline.
In addition, rising property assessment values provide us with greater opportunities for savings, particularly in disruptive times like like today.
And through our technology process and organizational improvements, we're increasing our efficiencies and supporting our strong margins on a go forward basis.
In the quarter.
50 million annuity building revenue stream in the UK was a noteworthy contributor while strong and approximately 5 million higher over Q2 last year. It was none nonetheless impacted by covert 19 subsidy program that eliminated 2020 ratings for companies in the leisure hospitality and retail sectors.
Yes.
As a reminder of the annuity billion occurs only in Q2, starting the second year of a cycle thinking Q2 years seasonally strong order for property tax.
The UK has recently announced that it will defer the next valuation cycle to 2023.
Thus, allowing us to continue annuity buildings into 2022.
And setting us up for another strong year.
All to say these positive trends the annuity stream I success rates, improving settlement volumes high market share and a growing pipeline.
All led to a record quarter, despite having face some of that pandemic related headwinds.
Based on a strong first half of the year the visibility we have into our pipeline and the current pace of settlements, which still appear to be moving along we remain well positioned to deliver another record revenue year at property tax.
Our valuation and cost advisory have proven to be steady businesses and these unique times.
As expected we saw some softness in the transactional parts of these businesses.
Our core portfolio valuation advisory and cost consulting services performed well.
And some elements showed growth.
On balance, we're maintaining our revenues and navigating carefully around some of the pandemic related challenges in the industry by focusing on unique opportunities and sectors.
For example, the pandemic has added greater flexibility, sorry, greater complexity to valuations and a number of our customers have ramped up to monthly valuations.
Cost, although we're still seeing growth in our core practice, we're also proactively positioning our offerings.
For infrastructure projects and to assist with some anticipated distressed real estate deals and workouts.
Turning to our financial position, we entered this period from a position of financial strength and our balance sheet remains healthy.
As our free cash flows grow we continue to pay down debt.
Cash to shareholders through dividends and pursue investments that will drive shareholder value.
The ended the quarter bank debt on our recently renewed credit facilities stood at 160 million down from last quarter, representing a funded debt to EBITDA leverage ratio of 1.65 times well below our maximum lemaitre four times, our cash and cash equivalents was 74 million.
Our cash flow generation was strong in Q2, reflecting some seasonality and worth highlighting that it's consistent with pre cobot historical levels.
We remain on so solid footing and continue to prudently manage the business. So that we can remain in a strong position and take advantage of emerging opportunities.
During the quarter, we pursued a global restructuring program.
The restructuring was planned as part of our strategy to continue to focus and invest in technology and information services platforms.
We recorded a total of seven and a half million in restructuring costs of which 3.9 million related to all to say analytics and the balance to CRT consulting and corporate segments.
These costs related primarily to employee severance as this restructuring was companywide and impacted approximately 4% of our global workforce.
To give you some color.
I'd also say analytics the child, the changes were relatively smaller in terms of headcount reductions, but higher dollar savings as it impacted some senior positions as the program aimed to realign our operating structure for the new operating model driven by our long term strategy.
This will allow us to rebalance some of our investments to target new emerging opportunities and to make room for new roles in our most strategic areas to strengthen the cap capabilities needed in support of our long term strategy.
At CRT consulting and within our corporate group the changes were more related to head count reductions, primarily in Canada, the UK and in Australia, including some accelerated retirements and non revenue producing roles.
We believe that some of the changes will better position us for profitable growth and the new operating environment Post cobot 19.
While there will be some cost savings in the near term I remind you will remain in growth mode and therefore, we do not expect any material impacts to our operating margins outside of previously planned levels and again I'd also say analytics. The restructuring is in line with our long term plan and the target ranges that we.
Rented for IEP, adjusted EBIDTA margins for 2020 and beyond.
With that I'll now turn it over to Bob.
Thanks, Angelo and good afternoon, everyone.
Look I'm really proud of our team's performance.
Against a challenging external backdrop, we delivered outstanding consolidated topline and earnings growth strong free cash flow and improved our consolidated adjusted EBITDA margins.
All while keeping our foot on the pedal to progress against our long term strategy.
I've been proactive and innovative and pivoting our offerings for emerging opportunities that made an incredible effort to support our clients while being under duress ourselves. It was an extremely productive quarter supports our optimistic outlook for the remainder of the year frankly for years to come.
Without a doubt 2020 has been one of the most challenging and unpredictable years in our industry and certainly in my career.
We recognize the hardships experienced in our communities and in our industry.
And from that perspective, we consider ourselves to be in a very good position to be weathering the storm.
And just see opportunity on the road ahead.
We are truly fortunate.
Not to say that we didn't face any headwinds.
And this fortune comes from it's truly a tribute to solid execution, we do have a good team.
It reflects our efforts in business transformation.
It underscores the high quality and resilience of our operating model, including our multiyear effort to enhance revenues to higher economic value recurring contracts validates the strategic importance of our solution set in the industry.
Pandemic has validated that all this group as a high degree of revenue stability during see CRB markets cyclicality.
And that many parts of our business are actually counter cyclical.
As we've been saying.
As an exciting time for all this group well underway in transitioning or Altus analytics business to a high growth overtime revenue model with a very attractive financial profile and it's very well time with an exciting run at property tax.
Our long term opportunity is attractive as ever at all at this analytics there are significant and permanent changes happening in our industry the expectation for insight and transparency has been high didn't substantially.
Digital transformation across our industry is accelerating by necessity for many companies. That's that's absolutely been accelerated by the pandemic.
We've seen this before were an escalation and increased momentum a significant transformations in industries are rooted during periods of crisis or economic upheaval and in this case, we have both.
This is a case or better tools.
Data analytics, and and the applications that support them.
This is a positive catalyst for all of this analytics business and our strategy to serve the CRM market with an end to end vertical market platform.
The foundational building blocks are in place and our transition of Argus enterprise to the cloud continues to progress inline with our expectations.
At the ended the quarter, 8% of our total Argus enterprise user base was contracted on the Argus cloud platform.
Compared to 6% at the end of Q1.
Bulk of the cloud volume continues to be SMP driven.
Where there is a more straightforward transaction and we're starting now to see bigger deals in the mix.
As we've been saying the larger companies will naturally take longer to convert as this is a strategic consideration for them.
But we are happy with how the pipeline is building.
Buyer, our very own experienced during the quarter, we completed the migration of our in house Canadian valuation group users to Argus enterprise on the cloud and we in suddenly saw a material benefit in the ability to share models internally, resulting in a more collaborative approach to undertake an appraisal assignments.
Several clients moving from quarterly to monthly valuations during this period evaluation uncertainty.
The efficiency games are important as the team was doing almost triple the number of appraisals in Q2 versus Q1.
Plus we have a number of new products and features and our cloud product roadmap over the next several months that will make it more attractive for a number of our larger clients in particular Argus Pablo include the new platform or party.
The already integration.
Enhancements and full integration with are going into and taliban's products.
We believe that as a number of the planned enhancements in new features address current client challenge challenges and will fortify our platform solution to help drive accelerated adoption later this year and obviously in 2021.
Overall, we're seeing continued momentum and making good progress siding Argus cloud customers as we are now approaching 800 artist cloud customers.
This includes both new customers as well as those who have migrated from the legacy on premise version.
And to build on what Angelo shared about the quarter.
We have CES, we have sustained momentum with or overtime revenue growth, which is benefiting from the higher economic value of the new subscription contracts. Our bookings volumes are picking up from the temporary slowdown experienced in the first part of the quarter as people have adjusted to the new normal.
Our software sales pipeline continues to be healthy.
As just discussed our cloud transition metrics are on plan.
And appraisal management solutions continue to be in high demand as evidenced by another strong quarter and we have a very strong pipeline of new opportunities and finally, our alters data performed very well in the quarter and we're excited for the opportunity for all of those data studio.
So in summary, we are in great shape and feel really good about where we're headed the market fundamentals remain exceptionally attractive and we are well positioned for the opportunity ahead, especially with our cloud strategy, which allows us to improve the economic value of our contracts well provide.
Adding significant value to our customers in the industry.
Look at property tax, we remain and growth mode and plenty of runway ahead of us as our market penetration is still modest relative to the opportunity as you heard from Angelo. We're also making solid progress improving the economic model doing chart in great part by Tech enabling.
The business.
The strength of the model is dependent on growing market share.
Factoring in both higher volume and higher value of appeals are growing scale significantly enhances our internal datasets, which combined with our deep expertise contributes to the strong success rates that were able to achieve for clients.
It also allows us to maximize the value of the appeals that we process, which given our high contingency model has mutually beneficial outcomes for our clients, but also for the company.
We're becoming less dependent on single cycle contributions from one geography and have achieved more balanced performance across the board.
Yes, combined with ongoing digital transformation initiatives, we're driving towards improved revenue predictability revenue growth and margin expansion.
As discussed in our last call a may.
This business is counter cyclical spiders, some short term impacts on the pandemic, we had a tremendous corridor and we're still poised for a record revenue year.
Looking now looking out beyond this year the market disruption brought on by Cobot 19 presents us with some unique opportunity that we're positioning our business for it's been our experience said periods of market disruption tend to lead to valuation volatility, which ultimately provides us with greater opportunity to maximize.
Hi savings for customers.
This sets up a pretty compelling outlook over the long term.
And a few points in support of that.
The 2020 slowing of casing case settlement activities has allowed us to focus on growing our pipeline for future years.
In addition, the spillover effect of some of the settlements that will get deferred will benefit the benefit us next year and beyond.
And the spillover into 2021 is likely to be higher than we initially anticipated and we will also see a spillover into 2022 as well.
Specifically in Ontario in the UK, we're likely to see an acceleration of case settlements next year that will give us additional momentum.
And importantly, the ukase extension of the 2017 cycle by an additional two years is a positive for clients and will allow us to continue with annuity billings through 2022. It also provides us with more times to process or existing pipeline and add to more 27.
Teen list files.
Our potential for higher at that winds in the next cycle strengthens drawn on her experience in past market disruptions that has always been the case for example, the volatility in property valuations could lead to higher savings for clients were already all over this in the US early this year the teams.
And the new client in the retail sector and already has achieved them savings of over a million dollars by proactively addressing the impact of cobot 19 on the retail space. There's many many more examples like this one and we're pursuing covance related adjustments for clients at all markets.
And also using that to drive our market share in these industries.
In the future. We can also benefit from some unique onetime cobot related Appeals for example in the UK, we're leading the class action on behalf of our clients in response to the devastating effects of Copel 19 on their business, resulting in the service of over 30000.
Appeals.
No. One has responded on that scale.
Given the strength of our key performance indicators as Angela covered off we're set up for growth and of course.
We believe that we're better positioned than our competitors and that there will be opportunities to add talent to our team build loyalty with clients gain more market share and we will obviously consider attractive tuck ins as we move ahead.
But we recognize that this is a very good difficult time for industry was shifting complexity more pronounced challenges in certain asset classes in sectors, and overall with client viability, which could introduce some risk a collections, but as a counter cyclical business, we have a great growth.
Runway ahead, and a phenomenal MACRA macro backdrop for property tax.
As they start to wrap up I want to congratulate and thank our employees for an amazing quarter.
We recognize the challenges.
The hard work the extra challenging times and we thank you for going above and beyond not just for all does but for our customers as well our industry is one that's still thrives on relationships and our customers have been leaning on us like never before and our team is.
Going above and beyond we're here to support the industry to manage or whatever challenges may lie ahead in this ever changing environment.
All of our solution sets are aligned to help our customers customers maximize the value of theirs CRB assets.
Im confident that the increased level of thought leadership and engagement that we're happy with our customers will serve us well over the long term.
Strengthening client loyalty and retention across every one of our business.
The World has changed from the last several months.
And we're committed as ever to do right by our employees the industry and the communities that we live in.
As we carefully planned ahead for inevitable return to an office setting.
We continue to prioritize proactive risk management and taking good care of our people customers and communities.
In addition to the pandemic recent months have also seen social unrest, particularly in the U.S.
That is brought this has brought heightened focus to racial and the quality and.
And the Justice and our societies for me personally.
It has reinforced the importance of diversity and inclusion across our company and in our society.
While I believe we have a great foundation in place at all to Altice, There's always room for improvement and we look forward to rolling up more initiatives this year.
So in closing I wanted to leave you with the following number one.
Our results from Q2 underscore the high quality and resilience of our operating model and validates the strategic importance of our mission critical solution set in the industry number two.
Against the backdrop of uncertainty our end to end CRB offerings drive better decision, making for clients, helping improve the visibility in flow of information through their critical business process to maximize the value of their scenery assets investments.
Our clients are facing both unprecedented challenges, but also opportunities in the current environment strengthening the long term demand for cloud based solutions data and analytics and professional services will be a factor can supporting our clients and number three.
Hey, we're in growth mode for long term fundamentals of our business and the market opportunity ahead of US our is great now as ever and we are very favorably position.
So with that.
Operator, if you get an open up the line for questions.
Certainly sir.
Ladies and gentlemen, we will now take questions from the telephone lines. If you have a question and you are using the speakerphone. Please lift your handset before dawn of your selection.
If you have a question you could registered by Downing Star one on your telephone keypad as you can cancel your question if you wish by dialing the pound sign.
Please press star one if you have a question at this time.
The first question is from Yuri Lynk, and it's kind of core Genuity. Please go ahead. Your line is now open.
Hi, Good evening, guys Hi, Eric.
One of the just drill in a little bit on the 8% cloud penetration rate through the quarter.
Bob is that still primarily driven by both small and medium sized customers.
Especially given the pandemic went when do you think you might get some of your top five clients.
To make the switch like what was their head up right now in terms of.
Cloud yeah.
Look I think the solutions that we're really seeing here over the next three or four months are the ones that are really going though.
Cause.
Some of this pipeline to start moving right and lets call about it.
Is that the way we developed our multiyear road map, we're on track with his transition.
Started with the SMB users and as we create this new infrastructure.
It's a great way to enter into a cloud model. So.
We feel we felt pretty good we actually caused a large transaction in the quarter was one of the one of our biggest customers.
And we had big big long discussions on cloud, but at the end we deferred.
And the reason for that is that we felt that we wanted to get it closed in the quarter. It contributes to the overtime revenues and we want to actually build a strategy with this customer that is going to be more abroad. So theres two things that theres two things in flight here, one or three one is getting our motto.
I was intact, and our and our business or shift to subscription models.
Well intact.
Get them and with that get the products out in the market for the enterprise.
For two weeks.
We also have an objective to increase our overtime revenues and this deal that we didnt close in the quarter is going to really contribute to that and then number three.
While we want to do is make sure that we partner with some of the Big service providers out there to go to market through a pie is through partnering in the market and it just takes time and so it's a it's a different way of looking at the market and the industry, but we've always plan for that and so we feel like we're on track.
To the metrics that we track inside our company.
And the pipeline pipeline because pipeline was really good in the quarter.
On larger deal so that feels pretty good as well.
Okay.
One for Angelo.
Hello.
Let's see one call you mentioned.
Expectations for.
Margins also sent a letter in 2020.
Good.
The way you saw it because year to date.
Over 300 basis points. So just wondering if you'd seen so we should expect some improvement in the back half of the.
I think theres a bit of improvement.
We expect so we are the ranges that we provided.
Back at our Investor Day in December our art is the range.
And part of what we did in June.
That was part of our our plan for 2020 and so it's it's a that range still holds and.
And so I think we're going to be within that well within that range.
Okay, I'll turn it over thanks.
Thank you.
The next question is from Stephen Macleod BMO capital markets. Please go ahead. Your line is now open.
Hi, Steve.
Stephen Macleod. Your line is now open. Please go ahead.
Oh, sorry about that I was on the apologize evening everybody.
Just on the tax business.
The quarter acumen quite strong and.
At the time of Q1, you talked about some of these delayed UK settlements, which it sounds like some of them did come fruition in the quarter, but.
What was there something in the quarter that was stronger or maybe Conversely, not as weak as you might have expected.
Well see going I think.
The last call we are still in the early throws of the whole pandemic situation and we were seen in certain jurisdictions.
Where they were some delays they weren't around as much harder.
Follow through on on settling cases.
As it turned out.
In many jurisdictions, many jurisdictions, where that was happening turned out that towards the end of the quarter it actually improved significantly and so.
So that was I don't know if you call it a pleasant surprise, but it was.
A bit of an unknown for us early on in the quarter.
Yes, Hey, Steve or one of the things that we got on pretty quickly when governments, we're trying to help businesses, we across virtually all of our.
Tax practices, we did a huge amount of lobbying with the government to say this is an easy.
Why would you why would you hold back on obvious tax settlements right and and that ended up being a fairly effective strategy.
[music].
In many of those markets.
But but.
But but we also enjoyed.
What what I'd love to both the quarter is that it was contributions from abroad sector. It wasn't like one phenomenon, which is a reflection of how taxes going to evolve as we go forward. We think we're getting critical mass in this business that is going to.
Really allow us to.
Start getting the benefits of a more consistent.
High quality revenue.
So there's a great quarter.
Yes, Okay. That's that's that's good color.
And then when you think about your property tax pipeline.
As you mentioned things sort of things that sort of unclog from where they were at the beginning of the quarter.
I assume you had a momentum building through the quarter. So when you look at your pipeline from where you are today.
What's your visibility and would you say that it's improved your outlook has improved from where you were.
Q1, I guess, it's fair to say probably house, but would you expect that it's still going be a record year for 2020 tax.
Yes.
Yes specialty given.
What we book today for sure.
We are being a bit.
Careful in terms of even our messaging and signaling, but we're very confident we have great visibility.
We're continuing to do business development, and and add new clients and new appeal to our pipeline and visibility is good.
And there is actually given what's going on in the market right now there's certain jurisdictions, there's new opportunities, there's new opportunities for for appeals that we hadn't even envision before so we are adding to the pipeline. It's.
It is growing and which is the reason we are feeling confident for the balance of this year feeling confident for 2021, and what I mentioned in the prepared remarks, with what Bob mentioned as well with the UK stretching out this valuation cycles.
Allowing us another year of annuities in 2022.
Just just stretches you know it stretches.
It stretches the opportunity in tax for many years to come.
Right. So the wildcard to the short term question is.
We had a really really strong settlement in Q2 that obviously it could have a modifier in Q3 right. We're not talking down Q3, I'm not saying Q3 is going to bed is going to be bad but but.
Was it was phenomenal across the board.
And so we're now in a place here, where if you look at tax on an annualized base as we have really really.
Strong visibility through.
Two or three year cycle now.
It's really positive and we take weaken.
Rather than the competition grow market share and we're ahead on our but our technology transformation. So this is a high value business.
Yeah, that's that's great.
And then maybe I just wanted to follow on on some of you just said they've all the right about the.
The really strong settlement you had in Q2 and given that the annuity cycles tend to be Q2 seasonally strong.
Are you able to quantify I like where that came in relative to what your expectations would have been.
I was just it was better in terms of the overall settlement and.
As one of those quarters, where we had a broad contribution right. So so it's just a recently.
Great corridor.
Particularly given.
The backdrop of what's going on in the World right.
I think look at I mean, the just a little.
Anecdote about that that I mentioned.
Yes, getting organized into pandemic at work from home to do 30000 Appeals in the UK on a class action basis talks to technology and the kind of influence we are having on the industry.
We we also had probably I mean in Western Canada is under a huge amount of pressure we had another strong Alberta corridor and it was like was amazing.
And so what that what what happens to the point I made earlier in.
The impact on.
Values, given the implications of rent or revenue.
Great incredible opportunities and you've got a government that.
Just trying to help these businesses.
On one side and that the other side.
Hard to argue.
That structurally the valuations are they had previously our defendable right and so all those elements or are in place that.
This is.
Like our tax guys are feeling pretty good about what's the next few years are going to look like they got lots to work with and that's really good news for our customers.
In a world, where it's really hard for our customers like they're looking for they're looking for health and this is one.
As agile set as a counter cyclical business, we're going to help them a lot.
Yeah, Okay, well, that's very helpful. Thanks, thanks much.
Thank you.
The next question is from Deepak Kaushal GMP. Please go ahead. Your line is now open.
Well good evening, everyone I just have a couple of hey.
A couple of follow up.
Well the question.
Bob on on.
Also analytics, you mentioned, the new big customer.
Following up for cloud.
But you seem to say that they had an extended contract or expanded agreement.
But.
Did put in a full kind of.
The full kind of.
Scope that you expected in your kind of holding losses for the future plans can you walk us through what that means a little bit of expanding geographically and waiting extend product.
So why don't you are going to happen, what we signed a number of multi or subscription agreements with these clients like three or five years ago. One came up in the corridor.
And as as part of the negotiation.
We didn't want to let the renewal date pass and so.
We got into.
Classic software negotiation.
Where we didn't want to that the economic value.
Yet.
Interrupted.
Bye.
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You know introducing some of the cloud complexity that when it come with that things like data rights.
Transmission rights in that so ended up negotiated an amazing contract.
Apps and cloud and we have an opportunity to go back and get it. So that's it wasnt it wasn't a comp comment on.
On the viability of the cloud for this client it was actually.
The way the.
The contract that come to be we elected to take a more traditional contract now with an option on cloud and come back to it and from an economic value that was a better decision for us. So is that simple just pure negotiation.
Okay. So do you have to wait till the next would know period to come back to cloud or can can you.
Well, we signed a five year renewal.
Add.
You know, we're really happy with.
And.
We will be back shortly.
So.
So just in terms of big enterprises in general.
If there was some kind of pause or slowdown due to corbett.
And now we're looking.
More comfortable kind of covance situation to some extent.
What is their thinking around around spending on on these types of transition, where they just where they kind of slowing down because.
Internal issues first are the risk shuffling budgets are textbook priorities.
What are their thoughts in terms of.
Priority.
I think what are our pipeline went up in the corner, so theres more opportunities than not.
Obviously like for all companies decision, making is is a little bit tricare, but again I'll say it again, we were not dependent on these large transactions for our multiyear transition. The key is to keep the SMB going we're actually doing better in advisory and all this data.
Through the quarter our pipeline in those two businesses have been phenomenal and there are modifier for any slowdown in the SMB part of Vargas. So.
We feel really.
You know positive about our position now against the metrics.
Okay. Thank you and then Angelo just on the UK, probably talking already billings.
Am I understanding correctly, the UK extended for another year could you announced last quarter that 621. Another thing that 2022 is that.
Right sure petition.
Yes, Thats correct, yes, we had two extensions as you well and the loss within the last quarter. So.
It just has to do with than being able to prepare.
Again, the pandemic is causing you can imagine just jurisdictions matter work that they have to deal with a number of appeals timelines and they have to go through an assessment.
Before they can.
Reissue, you values and and and so they just needed more time themselves and so they have announced that they are going to be shared another year. They haven't actually passed the legislation by it's pretty clear that's what they're doing.
And it.
Deep packet it puts an exclamation mark on the government's ability to actually strike evaluation right.
Because in this world.
You know that that's a very difficult thing to do at scale for all those establishment and that's another example of our ability to create.
Good outcomes for our customers because over there.
Shifting values.
Okay. So two follow ups to that.
So before all the top and you guys are expecting annuities. The peak this year does this push the annuity Pico between 22.
Keep growing until that on the annuity that.
Yes, correct.
And we have and the by then we'll have further gone in our digital transformation will have higher market share will have bought some companies.
We will have more data we shall win.
Looking forward to it and then just just the last one if I can submission.
You mentioned that the class action.
Around the taxes in the UK are there any extra and always we should be thinking about.
Stated with this like this suck up some future attacks claims or is this completely additive to the existing kind of momentum.
Well this is all additive.
Yes, it's all incremental too.
Just one of the opportunities that presented itself.
The results of this whole pandemic environment and it. So so think about it as has the best way to think about as Deepak is class action suit. So are there are different.
From what how they've seen in the U.S. as an example, so think of this as as a massive lobbying effort like we we work with a couple of industry associations to put this together.
And the outcome could be a onetime benefit for our clients or it could cause an opportunity in terms of how they strike values and so this is this is us getting mobilize.
Against all of the elements of a.
Of our operation.
To really be influential in that.
And all the tax markets that we serve right. So.
You have to have the data and technology as and customers I mean.
We're we're over 80000 establishments now in in the UK right. So.
As if the dynamic you can cushion.
Okay.
I have a different because at the what's cool about the UK as a single market.
Throughout the UK they don't have regional.
Or provincial breakdowns like they have in Canada.
Even in some cases municipal it's one big honking valuation market, so it's easier to get assembled against that.
I believe we probably fair to say that Alex provenance the team over there have.
Canada is pretty good too, but I've done incredible data mining so.
That's the other reason that they're able to do it.
Okay, well. Thank you again for taking my questions and all the credit I'd appreciate it.
Yes.
Thank you.
The next question is from gave a fair weather Cormark. Please go ahead. Your line is open.
Hey, there good afternoon.
Hi, Kevin Hi.
On the oldest analytic side.
In the past about how construction can cause increased usage and drive revenue just wondering kind of your experience through the quarter, whether you're up any anecdotes or keep your eyes on usage of the system or needing more licenses or more frequent appraisals.
Yeah.
One when you get into the enterprise conversation.
More and more we would say that the large global real estate companies and the.
And the.
Large service providers are driving digital transformations are thinking about how to improve workflow. We fully expect as they go into 2020, and they sort out their projects that Argus will be.
A foundational technology around that and Argus cloud, particularly where they can use it as a source of data collection and these are the kind of tools that are coming out over the next.
Four months things like collaboration Apiay size and that and so so anecdotally when I talk about the growing pipeline, we're having those.
Conversations that are about how.
We have to implement these solutions against their digital transformation and the story I I.
Told about.
How we used argus ourselves and the pandemic.
It's not lost on on the of the industry in the market and so most companies are now thinking about how they can get their data into cloud infrastructure and we're having great conversations and then secondly.
We take what are the things it's going to happen.
At some of it driven by US as is we're going to we're in a period of time, what we're integrating our businesses and so if if in our appraisal managing business, which which had a great quarter growth and margin.
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If if we.
Actually start built using Argus cloud to contribute to date exchange to contribute that data bridge.
That will create.
Traction with the biggest customers in the air and the World and the Big software providers to want US are those clients and so that's that's a big part of our strategy only add some pretty interesting.
Breakthroughs in the quarter about how that's going to work.
And then finally with point into.
We're working with a couple of large clients to be their data aggregator their data collection.
Platform for those customers, which then again ties into Argus cloud all of these are great opportunities.
Go for it.
The last thing I'd I'd mentioned as well is just the demand we're having from many of our clients to help them running Argus models right in our RV practice, where.
They don't have necessarily in house expertise yet.
And so we're running a lot of the analytics on on on their behalf.
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Thats great very helpful. Just secondly from me before I pass the line M&A earlier in the year I think you.
Process was being more can opportunistic pacing thing or things kind of played out and I just thought I'd take your pulse on on your M&A appetite now.
Right.
Or get a little more calls post content mix that's for sure.
I like guide I think the.
We were looking at it is probably unlikely.
Hi, shell say it this way we got to get to a point, where we've got to be able to integrate these these acquisitions and.
As one of the barrier one of the challenges of the pandemic or covert 19 hard to imagine they can do integration.
Right now right and so we do have a couple of interesting opportunities that we're we're probably going to sign some partnership agreements and use.
He was the partnership agreement.
As a way of doing combination of due diligence and.
Dating and maybe even engagement to get married right. So.
So that's the way we think we're going to work our way through it at least in the short term.
Makes sense congrats on the quarter. Thank you. Thank you.
Thank you.
The next question is from Paul Treiber Treiber.
From RBC capital markets. Please go ahead. Your line is now open.
Thanks, so much and good afternoon.
Couple of follow up question on property tax.
We see very strong quarter.
Im just trying to get a sense if it was better than your expectations. Prior to co bid when you net out all the puts and takes because it seems like you benefited from to some degree of washes settlements. But then also there was some deferrals and then the suspension of the 2020 ratings in the UK. So when you look at it prior to co bid.
Was it better than expected in line.
I think in the long term, 100% way better than we expected from a counter cyclical pure perspective, we'd in part of the reason that we had some trepidation.
We then I mean try now run.
Loss I don't want that we set how much we lost and for I think you did it didnt yeah, we lost a huge amount of revenue in the UK and the corridor, which will be replaced next year was a onetime rebate.
And then how ran that in the UK and then had a broad success, where we were able to gave so yeah. It was way better than we expected.
In the quarter and frankly, a 2022 valuation deferral for the UK was a positive on top of that so yes happy happy happy.
For Angelo could you quantify huge.
Quantify im sorry.
Bob's comment about.
The huge huge amount of revenue in the quarter.
Well, we didnt, we talked about it we also I believe if I recall, we talked about in the last quarter, but we didn't actually put a number and so it relates to.
Three industry segments, hospitality retail and leisure and and so for those clients. They had a tax holiday for 2020 in and and obviously, we can you can't billing for something that they don't know.
And it was just a one year thing so it comes back next year.
But we havent quantified and we didn't put that number and we added.
Sorry.
I mean lot it would've been a segment of.
Last years numbers.
On top of.
15 million that we would have book this year so.
But I can't I can't give you numbers since we haven't published one.
Okay, and then specifically.
UK annuity billings up 50% year over year significant increase what's in fundamental driver of that in our those drivers.
Interval.
Yeah, I mean again, it's a little bit unlike the subscription model right. So you you build it constantly every year you've got.
The billings from the year before in and then you are you putting you've got what you did in a new lease from the prior year and then in the last year than UK settlements just build on top of that so.
It's a increasing function.
And now there is there is.
A little bit careful as you get longer in the cycle you may lose a few of those clients because some some may go bankrupt just some pull off the table, it's not 100% that you get to capture again in the following year, but it is a very high percentage.
Then one last thing.
Thanks for taking my question.
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Thank you.
Once again, please press star one if you have a question at this time on the next question is from Richard Tse National. Please go ahead. Your line is now open.
Yes. Thanks.
Well.
Hey.
Aside from coal bed with respect to.
What do you figure the current major gating factors are to converting or large customers like what are they want to see that just time.
Yes, I think we've always said that Theres just a.
Look when you put in a new application.
You think about it not as a departmental up I mean, we're selling Argus enterprise to enterprise, we still have our normal volume.
People are taking licenses, but we're talking about here.
As a full scale transition so I've said it in the past meetings. The reason that we didn't.
Have a hover over a significant amount of enterprise expectations in the first here as you got to selling cycle you got the.
Cycle of validation, so if you're putting in new cloud application and so the biggest companies in the world later, the security responsibility around that you have to get budgets organize and the functionality that I've talked about a couple of times on the call as the functionality people need to operate.
These solutions on a global basis different from the SMB customer.
Okay, and then no doubt you're in discussions along with your customers.
The barrel I'm, saying with respect to whether they're seeing any permanent structural changes in commercial real estate, you know whether its work from home.
Shifty E commerce.
How does that change how you think about should that product and services. The rollout as we look kind of beyond this.
The bell curve on that is huge right.
If you're if you're in.
If you're in retail and Thats a predominant part of your business is extremely challenging time in both in terms of bankruptcies collection and the like and frankly the work with.
Future of.
A retail so already see you're seeing and those kind of markets that are the hardest hit.
You know serious repositioning those assets and like I saw that God I can remember was.
One of the Big mall owners.
It's close.
Just to deal with.
Amazon to use one of their big box stores as a distribution.
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Center in.
Multiple locations most urban suburban to downtown so you're already seeing people scramble right and find different ways to reposition their assets I take the.
The good news is and I've said this all along for the most part.
Real estate has become an institutional game pension funds insurance banks private equity.
And you know there.
They are repositioning rather than retrenching is probably a consistent theme.
Well what could be.
What could be interesting is the workouts that come out of that repositioning.
The valuation war I actually think the shift is going to move to.
Managed funds where versus rates, which have been more specialty model line.
Type of structures, and you're going to see that the big.
Large firms, including the pension funds.
Probably even looking at buying some of those rates.
And turning them into managed asset.
Either directly for the pension fund or indirectly as a.
As a asset management solution, we're seeing that we're seeing all sorts of activity all over the place thats good trend for us because we value those funds.
And then and then.
All of our competitors for Argus.
Almost everyone as a single asset competitor and and when when we think about investment management.
We think about the complexity of not managing portfolios and we're going to reinforce that as part of our roadmap.
As we go forward.
Because you know like if you look at Realpages, an example, or kind of a multifamily or multifamily company install lease complex.
Asset class and although they think they're going to compete against us and investment management and get to happen.
Because the complexity of running these institute institutional portfolios with Argus collecting data and things like data exchange doing.
Doing the things that we deal with data bridge on integrated basis is really complex stuff.
And that plays to our strengths and that's going to sharpen our roadmaps.
Okay, great, but congrats on this solid results.
Thank you.
Thank you.
There are no further questions Mr., ctwo and we'd like to turn the conference back over to user.
Yeah look.
There was a great corridor.
We're really happy with where we're positioned.
But this this isn't causes us to relax we are fired up about the opportunities in front of US we think that.
This puts a lot of pain and funding and viability of some of the smaller companies that might have been changing as we think we have a better mode today, and both tax and office analytics and with some of our services business that we did three four months ago, we've always been saying that or.
Thats a proven so thanks, thanks for the interest and thanks for your support.
Thank you.
Ladies and gentlemen, this concludes todays conference call should you have further questions. Please contact Camilla Bart social its ultimate group at 4166 for 19773.
That number again.
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As you put modest single family homes that WP.
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Okay.
Okay.
Okay.
Yes.
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