Altus Group Limited

Thank you for standing by. This is the conference operator, and welcome to the Altus Group second quarter 2022 financial results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will 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. Please go ahead.

Thanks, Joe. Good afternoon, everyone, and welcome to Altus Group's second quarter results conference call and webcast for the period ended June 30th, 2022. The news release announcing our results was issued after market close this afternoon, and it's posted on our website and CEEDAR profile, along with our interim MD&A and financial statements. Joining us today are CEO Jim Hannon and CFO Angelo Bartolini. We'll start with some prepared remarks, and then we'll move right into the Q&A session. If we miss any questions, please contact me directly by email. Angela will begin by covering off our financial performance, and then Jim will provide an operational update. Before we get started, please be advised that some of our remarks on this call may contain forward-looking information. Forward-looking information is based on assumptions and therefore is subject to risks and uncertainties that could cause actual results to differ materially from those projected. You can read about these assumptions, risks, and uncertainties in today's press release and our most recently filed MD&A and annual information form, as well as in our other filings with the Canadian Securities Regulators. We undertake no obligation to update forward-looking information except as required by law. Also, please be reminded that Altus Group uses CERN non-GAAP and other measures as indicators of financial and operational performance. An explanation of these measures are detailed in today's news release, MD&A, and in our other findings with the Canadian securities regulators. Okay, over to you, Angelo.

Thanks, Camilla. I'll start by covering off our financial performance and balance sheet, and then turn it over to Jim for an operational update. We're very pleased with another strong quarter marked by solid financial results and steady progress against our strategic initiatives. In fact, this was a record quarter for the highest quarterly revenue and adjusted EBITDA. Like all global companies, we had some more pronounced foreign exchange impact this quarter, so please note that unless otherwise specified, all figures referred today are as reported, and all growth rates are on a constant currency basis. On a consolidated basis, revenues were $206.4 million, up 20%, of which 16% of the growth was organic. And adjusted EBITDA was $49.7 million, also up 20%. This reflects the strength of the property tax annuity revenue stream, which essentially flows directly to the bottom line, but also signifies improvements at Analytics as we capture synergies from last year's acquisitions and continue to adjust our cost structure in line with our new operating model. The momentum at Analytics continues with the business steadily performing with double digit top and bottom line growth. It was another quarter of solid sales execution driving bookings and revenue growth, as well as margin expansion. The growth reflects healthy demand for our products and services in combination with the operational enhancements we've been making, as well as our disciplined approach to expense management. Analytics revenues came in at $82.1 million, up 37%. Organic performance is an important KPI for our sales execution, and I'm very pleased with the 26% organic revenue growth in Q2. This marks the fourth consecutive quarter of organic constant currency revenue growth in the 20% range, with Q2 being the highest. Our focused investments towards a recurring revenue model are paying off. Overtime revenue was $70.9 million, up 41%, and up 28% on an organic basis. Sequentially, overtime revenue was up 4.5%. This also reflects the strength of recurring bookings from past quarters. As a reminder, bookings typically take a quarter or two to flow into revenues. Year-to-date overtime revenues now represent 86% of our total analytics revenues, a solid position to be in during periods of economic uncertainty. To provide you with some additional color, we had double-digit growth across all our key solutions. Revenues from software, data analytics, and appraisal management were all up nicely. A high percentage of our revenue growth continues to come from our existing customer base. Once we win a customer, we grow with them. This validates the high value we provide to our clients and the significant runway for wallet share expansion. And we continue to steadily add more customers to our roster, both in North America and internationally. In Q2, we added 214 new logos for Argus. This is in addition to new logos for our other solutions. Our ongoing international expansion efforts are progressing well too. While the majority of our growth continues to come from North America, we also posted notable growth international, both in EMEA and APAC. On the earnings front, adjusted EBITDA showed positive improvement in the quarter at $13.8 million, up 49%. This is significant when you recall we purchased Reonomy late in 2021, an early-stage business with an adjusted EBITDA annualized run rate loss of about $20 million. Although we have begun to achieve synergies, we still have more to go. Also bear in mind that as part of the purchase price adjustment for Reonomy, we incurred a discount on deferred revenues of approximately half a million in Q2, which also impacted adjusted EBITDA. This adjustment had a 0.5% impact margins in Q2. While gradually improving, Reonomy's adjusted EBITDA performance continues to negatively impact margin in the near term, but this is in line with our plan. As we have noted in the past, we expect the Re-Army business to operate at a break-even level by the end of Q4. Overall, adjusted EBITDA growth benefited from higher revenues, improving operating efficiencies, and ongoing cost optimization efforts. We expect gradual quarterly improvements in margin, consistent with our expectations to improve full-year margins over last year. Our bookings at $23.5 million were solid, They are predominantly recurring. As you know, this is where we have targeted our investments and our go-to-market focus. With respect to the bookings growth, if we break that down by bookings type, recurring bookings were up significantly, growing in the high double digits. In fact, it was a particularly strong Argus software bookings quarter. However, the bookings that relate to one-time engagements were significantly lower given the magnitude of sizable one-time projects that closed in the second quarter of 2021 that did not reoccur. You might also recall that in the prior year, we were also benefiting from a rebound in some software consulting projects that had been paused at the peak of COVID in 2020. Turning to the CRE consulting segment, At property tax, Q2 revenues were 93.5 million, up 11%, and adjusted EBITDA was 42.1, up 10%. A high majority of the growth was organic. We had solid growth in the U.S., where there is some seasonality in Q2, driving increased case settlements. We also benefited from higher valuations that provided us with increased opportunities for bigger wins. In Canada, revenue performance was largely consistent with last year. Declines in Western Canada were offset by stable performance in Ontario and modest growth in Eastern Canada. All of this reflecting timing of certain market cycles. And in the UK, revenue growth was modest, impacted by FX headwinds that overshadowed double-digit constant currency growth. The UK continues to be impacted by the ongoing slowdown in settlement activity volumes with evaluation office resources are tied up preparing valuations for the new cycle that starts next year. The pace of settlements isn't ramping up at the levels we expected. So effectively, when the backlog starts to clear, this is going to spill into future quarters. We've seen this play out before. So all to say our pipeline of cases to be settled in upcoming quarters and spilling to 2023 remains robust. And of course, the cyclical and seasonal annuity billings in the UK was a significant contributor in the quarter, representing $33.2 million in revenues compared to $25.7 million in the second quarter of 2021. We're really pleased with how this revenue stream has grown. With the increase reflecting a higher cumulative number, the 2017 cycle case is settled. The reminder, this annuity revenue stream resets next year with the start of the new cycle before it starts to ramp up again in 2024. Unlike the US or Canada, where we bill a client once for the savings over the whole tax cycle, in the UK, we bill clients annually as a percentage of the savings achieved during the appeals process. Hence, we refer to that billing as the annuity. As we start a new cycle next year, the volume of appeals that drive revenue will need to be rebuilt, though we still have a healthy backlog of appeals to clear in this current cycle. Overall, we're very well positioned for the year as we have a healthy backlog of tax appeal cases to be sold, a healthy pipeline, and our people are the best in the industry at maximizing success rates for our clients which works well with our contingency model. Additionally, our valuation and cost advisory businesses had a good quarter with revenues up 13% to $30.9 million and adjusted EBITDA up 67% to $4.5 million. This reflects continued healthy market demand as well as good sales execution as both businesses are now closely aligned with our analytics operating model. We also benefited from a lower compare in the same quarter last year, which, as you might recall, had some impact from the cybersecurity incident. As you may recall, in Q1, we initiated a global restructuring program as we drive toward greater efficiencies in our operating model. We expect this program to continue throughout the year and would point out this is always part of the 2022 plan. In Q2, the one-time restructuring costs were $5.5 million. is primarily related to employee severance costs, reflecting the synergies we're obtaining from recent acquisitions, efficiencies gained from investments in technology, and the ongoing evolution of our target operating models in support of our strategic initiatives. Turning to our financial position, our balance sheet remains very healthy, and we continue to have significant financial flexibility. The net cash from operating activities continue to be strong. and we are reinvesting in our core infrastructure to drive efficiencies and margin expansion. At the end of the quarter, we amended our credit facility to increase borrowings from $400 million to $550 million, with certain provisions to go to $650 million. We also welcomed three new syndicate members and extended the maturity to 2027, an additional two-year extension option. Pricing remains the same on pre-existing levels. However, we added security on certain assets in North America and the UK. The other notable item, we increased our maximum leverage threshold from four to four and a half times with the added flexibility to go up to five times following certain business acquisitions. The goal here was to maximize our financial flexibility to be best positioned to go after strategic acquisitions as opportunities arise. But as you've heard us say before, Our optimal target is to stay around the 2.5 times leverage ratio range. We would only go higher about three times for highly strategic acquisitions, but we have a solid, deep leveraging profile to target the range within 12 to 18 months. We finished the quarter with a cash position of $67.1 million and with $345 million in bank debt. Funded debt to adjusted EBITDA leverage ratio as defined in our credit agreement was 2.63 times, while below our new maximum limit of 4.5 times. Applying our cash, the net debt to adjusted EBITDA leverage ratio was 2.37 times, representing a very healthy balance sheet. Given our growing adjusted EBITDA levels and our ability to generate strong cash flows, we are able to deleverage quickly and reapply our available capital towards growth initiatives. And finally, before I turn it over to Jim, as you saw in today's press release, I wanted to share with you my plans to step down as CFO by the end of the year. This gives us plenty of time to conduct a comprehensive search for my successor and for me to support the transition. After nearly 15 years at Altus Group, the time has come for me to turn the page onto my next personal chapter. Very few public company C-suite executives have enjoyed 10 years as long and rewarding as I have. I've had the runway and time to make lasting contributions, working alongside the most talented people in the CRE industry and capital markets to build something truly transformational. The last 15 years have been some of my best, and I'm incredibly proud of all that we accomplished in all this to be the trusted global leader that we are today. I'm looking forward to taking some time to spend with family, to explore life interests outside of corporate finance realm before I jump into something new. Our platform for growth and operational excellence has never been stronger. I would like to reaffirm the strong confidence I have in Jim and the executive team who are delivering on Altus's untapped potential. Our growth engine is roaring and the results are showing in our financial performance as we are on track to deliver another record year. I firmly believe Altus's best days are still ahead and I wish everybody continued success. I'd also like to thank my team. They're one of the strongest finance teams I've had the pleasure to work with and I'm so proud of all your accomplishments. I will definitely miss you. And finally, it's been a great privilege to work closely with the street over the years. Our shareholders, analysts, and bankers have been great partners Thank you for your strong support over the years, and I look forward to keeping in touch. With that, I'll now turn it over to Jim to take us through some of the operational progress.