Altus Group Limited

Thank you for standing by. This is the conference operator. Welcome to the Altus Group second quarter 2021 financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Camilla Bardasheviks. Please go ahead.

Thank you, Gaylene, and good afternoon, everyone. Welcome to Altus Group's second quarter results conference call and webcast for the period ended June 30th, 2021. The news release announcing our results was issued after market closed this afternoon and it's also posted on our website along with our interim MD&A and financial statements. Joining us today is our CEO Mike Gordon and CFO Angelo Bartolini. We'll start with some prepared remarks and then we'll move right into the Q&A session. If we missed any questions, please contact me directly by email. Angelo will begin by covering off our financial performance during the quarter and then you'll hear from Mike on an operational update. Before we get started, please be advised that some of our remarks on this call may contain forward-looking information. Also, please be reminded that Altus Group uses certain non-GAAP, non-IFRS measures as indicators of financial and operational performance. Forward-looking statements and an explanation of these measures are detailed in today's news release and in our related reports on CEEDAR. So with that, I'll now turn it over to Angelo.

Thanks, Camilla, and thank you all for joining us this afternoon. We're really pleased with the solid execution in Q2 and with the strong financial performance in the first half of the year. We're making great progress against our strategic initiatives, which gives us a solid foundation for continued growth over the long term. Turning to the quarter and business segments, given the currency fluctuations in the first half of the year and our increasing mix of international revenues, we have started to show revenues in adjusted EBITDA on an as-reported IFRS basis, while also breaking out the constant currency growth for a better comparative view of our performance, without the impact of fluctuations in foreign currency exchange rates against the Canadian dollar. We have done this by translating monthly results denominated in local currency, be it the US dollar, the British pound, the euro, Australian dollar, and other foreign currencies, at the exchange rates of the comparable month. As we've seen, FX fluctuations have been a much more pronounced headwind in the first half of the year, particularly for the Altus analytics business. So with that, I'll continue to frame my comments on as reported numbers and where appropriate will speak to the constant currency performance drivers. On a consolidated basis, revenues and earnings grew in the double digits. Revenues increased 12% to 173 and a half million. while adjusted EBITDA was up 21% for $42.2 million, improving our margins from 22% last year to 24% in Q2 2021. Our year-to-date margins are also showing strong improvement at 19% compared to 16% in the first half of the year. At Altus Analytics, we had healthy growth on a constant currency basis across all key business lines. Revenues were up 16% to $59.3 million, or 26% on a constant currency basis. Organically, revenues were flat, as reported, but up 10% on a constant currency basis again. And the acquisitions of Finance Active and Stratagem Analytics represented 16% of the constant currency growth. Our overtime revenues, our key metric for reporting recurring revenues, were up 17% to $15.1 million year-over-year, or 27% on constant currency. Organically, overtime revenues were down 1%, but up 8%, again, constant currency. We also had an improvement in adjusted EBITDA, which was up $9.5 to $8.9 million, or 24%, again, in constant currency. Organically, earnings were up 6% and 21% constant currency. To add some color on the revenue performance, as we experienced in Q4 and in Q1, FX continued to be a headwind. Our key rate, the USD to Canadian rate, was 1.39 in Q2 last year versus 1.23 this year, causing a significant impact on reported results. Our overtime revenue base continues to build, and we're feeling really good about achieving double digit growth for the full year in 2021. Again, in constant currency. In Q2, overtime revenue growth was driven by strong contribution from Finance Active, which is a growing SaaS business and an important component in our debt strategy. Higher subscription revenues, reflecting the stacking effect of the subscription revenue model of both current and past deals, and overall higher subscription revenues from our software and data solutions. As you'll hear from Mike shortly, we're making solid progress transitioning clients to AE cloud subscriptions. And we had steady performance in appraisal management solutions with a healthy cadence of new client additions, as well as our existing client adding more assets onto the valuation management platform, which was rebranded as Argus Value Insight. In addition to the healthy overtime growth, total revenue growth also benefited from a COVID related recovery in our software consulting and education services. The strong growth at our 1.11 software consulting business, where we support companies on implementation of their technology roadmaps, is a really good indicator of healthy market conditions and companies investing in modernizing and upgrading their technology platforms. And overall, we have strong growth retention across all our software data and analytics solutions, many which are considered to be mission critical by our clients. As an example, our appraisal management business has had zero client churn over the past couple of years. AE software maintenance retention is at an industry-leading mid-90s range, and Finance Active also enjoys mid-90s gross retention. Our resiliency was proven throughout COVID, and with the added focus from our customer success program, we see more upside on both gross and net retention. Following an impressive 42% growth, 42% bookings growth in Q1. The momentum continued into the second quarter. In Q2, we posted a 72% growth, 89% constant currency. Organic growth in bookings was 63%, 80% on constant currency. As Mike pointed out in our press release, our organic bookings in the first half of this year equaled more than two-thirds of total bookings in all of 2020. As a reminder, our bookings metrics includes all of our Altus Analytics revenue streams, both the recurring overtime and the non-recurring. For overtime streams, we take the annual contract value for new sales. This includes software, appraisal management solutions, and our data subscriptions. On renewal contracts, we count only the incremental portion that was not in our revenue base previously. So to be clear, we do not count renewals. And for the non-recurring one-time revenues, such as consulting, training, and due diligence work, we take the total contract value. With respect to bookings, it takes about a quarter or two for it to start to flow into revenue. For recurring offerings, the value of each new contract adds to our already significant level of overtime revenues and supports our ability to achieve healthy growth in overtime revenues in the coming quarters. With non-recurring bookings, this will be reflected in point-in-time revenue and incoming quarters as we deliver on these engagements. On the earnings front, as a reminder, our Q2 margins were impacted by a $1.4 million purchase price accounting adjustment to finance active's deferred revenues. The bulk of it was recorded in Q2, and this will ramp down in subsequent quarters. Overall, the purchase price accounting adjustment had a 2% impact on our Q2 margins, which would have otherwise been up year-over-year. In addition, we have also moderately increased our expenses on a year-over-year basis to accelerate our data strategy, including building out the Stratodem analytics platform. Factoring in the impact of the accounting adjustment, we continue to expect that our full-year margins will be similar to last year's. and we should see an acceleration next year. On the whole, we still feel good about delivering double digit EBITDA growth this year. Turning to the CRE consulting segment. At property tax, it was a record quarter marked by exceptionally strong annuity buildings in the UK. As a reminder, Q2 is a seasonally stronger quarter at tax and our UK annuity revenue stream grows year over year throughout the cycle before it resets the first year of the new cycle. Our Q2 property tax revenues were up 13% to 86.7 million. We're up 16% on a constant currency basis. And adjusted EBITDA was up 27% to 39.7. We had solid double digit revenue growth in the UK, single digit in the US, while modestly down in Canada. The UK annuity was a significant contributor representing 25.7 million in revenues compared to 15 million in the second quarter of 2020. And prior to that, approximately 10 million in Q2 of 2019. The increase reflects higher cumulative number of the 2017 cycle cases settled. While strong, the UK annuity billing was impacted by a COVID-19 government subsidy program which provides a temporary tax relief for companies in the retail, hospitality, and leisure sectors. In the U.S., we benefited from increased seasonal case settlements in Texas, as well as a catch-up on COVID-19-related delays from prior quarters. In Canada, revenues were lower, primarily impacted by timing of Ontario settlements, some of which were pulled forward into the first quarter, as you might recall from our comments in May. as well as by lower year-over-year comparative performance in Montreal and Manitoba, which were more favorably positioned in their cycles in the prior year, partly offset by significant multi-year case settlement in Saskatchewan. Overall, it was a solid quarter as characterized by the following, appeal settlement volumes moving along and insert markets picking up, sustained high success rates translating to higher savings for our clients, a growing pipeline of business as measured by volume of appeals and total value, thus increasing our market share, steady progress integrating our national practices under a global operating model, and steady progress against our digitization efforts. These trends set us on very strong footing to sustain multi-year growth and to deliver another record year in 2021. And finally, our valuation and cost advisory businesses continued to deliver steady performance, a solid reflection of their market leadership. Revenues and earnings were flat at $27.6 and $2.7 million, respectively. Overall, we benefited from higher underlying activity levels over the prior year. However, given the fixed fee and time material nature of these businesses, we did see some impact in the quarter from the cybersecurity incident. that cause certain projects to be deferred. We estimate the impact to be approximately 1.6 million on the quarter. Turning to our financial position, our balance sheet remains in great shape and our cash flows are strong. We finished the quarter with a cash position of 74.1 million and 248.8 million in bank debt. Our reported funded debt to EBITDA leverage ratio was 2.03 times. With that, I'll now turn it over to Mike.