Altus Group Limited

Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Altus Group first quarter 2023 results conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you. And Ms. Kamila Bartosiewicz, you may begin your conference.

Thank you. Good afternoon, everyone, and welcome to Altus Group's first quarter conference call and webcast for the period ended March 31st, 2023. The news release announcing our results was issued after market closed this afternoon, and it's posted on our website and CEDAR profile. along with our MD&A and financial statements. A presentation to accompany our prepared remarks has also been posted to our website under the investor relations section. Joining us today are CEO Jim Hannon and our CFO Pavan Chhabra. 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. Some of our remarks today may contain forward-looking information. Forward-looking information is based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. These assumptions, risks, and uncertainties are detailed in our forward-looking statements disclaimer in today's materials. Please be reminded that Altus Group uses certain non-GAAP financial measures, non-GAAP ratios, total segments measures, capital management measures, and supplementary and other financial measures as defined in National Instrument 52-112. We believe that these measures may assist investors in assessing an investment in our shares as they provide additional insight into our performance. Leaders are cautioned that they are not defined performance measures and do not have any standardized meaning under IFRS and may differ from similar computations as reported by other similar entities and accordingly may not be comparable to financial measures as reported by those entities. These measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with IFRS. An explanation of these measures are detailed in today's IR materials, including the news release, presentation, MD&A, and other findings with the Canadian securities regulators. I would also like to point out that unless otherwise specified, all the growth rates we'll be referencing on this call are on a constant currency basis over the same period in 2022. Okay, over to you, Kevin.

Thank you, Camilla, and good evening to everyone on the call. We had a positive start to the year, continuing our multi-quarter trend of top-line growth and margin expansion. We are now on eight consecutive quarters of double-digit revenue growth and three consecutive quarters of delivering margin expansion at the consolidated level. Beginning with our consolidated first quarter results, although we had foreign exchange rates working in our favor, as Camilla pointed out and Les specified, the growth rates I will be referencing are on a constant currency basis. Revenues were up 11%, supported by double-digit growth at both analytics and property tax. Adjusted EBITDA was up 43%, driving a nice 330 basis point improvement in margin, which stood at 14%. Profit was negative 2.4 million, which is 9 million better than last year. As a reminder, Q1 of 2022 included an $8.4 million restructuring charge. Q1 of 2023 reflects higher interest rates on our bank credit facilities. We also incurred higher year-over-year expenditures related to the implementation of the new ERP and CRM systems. We're proud to say that our ERP went live in Q1. I'd like to congratulate the team for their hard work in getting us there. For the planned phasing of the project, the CRM deployment continues through Q2. Adjusted EPS came in at 33 cents, and free cash flow was negative 34.4 million. Free cash flow in the quarter reflects the impact of our annual bonus payouts, payments related to our 2022 global restructuring program, and increased working capital balances due to anticipated delayed billings as we cut over to the new ERP system. As expected, we're seeing an improvement in April in collections and working capital operations. Turning to our business segment performance, starting with analytics. As you will see in our results, the momentum continues in analytics. Revenue was up 12%, and notably recurring revenue was up 19%. All analytics revenue is now organic. To offer more color, revenue growth continues to be driven by strong recurring revenue performance, which is where our go-to-market efforts and investments are focused. This includes growth across key revenue streams in software, valuation management solutions, and in data solutions. A high percentage of our recurring revenue growth continues to be driven by customer expansion and supported by the ongoing transition to cloud subscriptions and steady new customer additions. Adjusted EBITDA continues to grow with higher revenues and improved operating leverage. Overall, we're really pleased with the sustained momentum and recurring revenue growth. At 85.3 million in the quarter, recurring revenues represent approximately 90% of total revenues. This provides us with a resilient revenue base. The 740 basis point adjusted EBITDA margin expansion in the quarter reflects revenue growth and improvements in our operating model. Those include focused go-to-market activities, cross-border salary leverage, streamlined processes, and better resource management. We remain confident in our plans to expand margins in 2023. Turning to property tax, revenue growth was solid, growing at 13%. This reflects double-digit growth in Canada and the UK and steady performance in the US. In the UK, our pipeline of cases to be settled in the upcoming quarters has grown and remains robust. We are now officially on the new 2023 rating list that commenced on April 1st, and through the investments we've been making, we remain well positioned for the new cycle with a much better backlog. Adjusted EBITDA benefited from the revenue growth, and our margins are holding steady for our expectations. And finally, appraisal and development advisory performed steadily in the quarter, driven by development advisory team in the APAC region. Turning to our balance sheet, we finished the quarter with a cash position of $42.9 million and with $350.1 million in bank debt. The funded debt to EBITDA leverage ratio, as defined in our credit agreements, was 2.21 times, well below our limit of 4.5 times. applying our cash, the net debt to adjusted EBITDA leverage ratio was 2.13 times, representing a very healthy balance sheet. Regarding our capital allocation priorities, we'll continue to reinvest in the business to scale effectively, opportunistically pay down debt, and maintain financial flexibility should attractive acquisition opportunities materialize. With that, I'll now turn it over to Jim.