Altus Group Limited

Good afternoon and welcome to Altus Group's Q2 2024 financial results conference call and webcast. Please note that today's call is being recorded. 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, please press star then the number one on your telephone keypad. To withdraw your question, press star one again. I will now turn the call over to Camilla Bartosiewicz. You may begin your conference.

Thank you, Brianna. Good afternoon, everyone, and welcome to the conference call and webcast discussing Altus Group's second quarter results for the period ended June 30th, 2024. Our disclosure material, notably the press release and DNA financial statements and the slides accompanying our prepared remarks, are available on our website and, as required, have been filed to Cedar Plus after market close this afternoon. I'm joined today by our CEO, Jim Hannon, and our CFO, Pavan Chopra. Some of our remarks on this call and in our disclosure may contain forward-looking information that is based on certain assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our forward-looking information disclaimer in today's material. Please be reminded that Altus Group uses certain non-GAAP financial measures, 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 entities and accordingly may not be comparable to financial measures as reported by those entities. These measures should not be considered an isolation or a substitute for financial measures prepared in accordance with IFRS. An explanation of these measures is defined in today's IR material. I would also like to point out that unless otherwise specified, all percentage and basis point growth rates we refer to on today's call will be on a constant currency basis over the same period in 2023. Okay, over to you, Kevin.

Thanks, Camilla, and thank you, everyone, for joining us today on the call. Our teams continue to make steady progress against our 2024 goals. and to strategically position Altus to maximize opportunities as market conditions improve. Our Q2 results reflect geographic variability at property tax and a persistently tough selling environment at analytics and at the appraisals of development advisory. Recapping our consolidated metrics, revenue was steady on a constant currency basis with the growth at analytics offset by flat performance at property tax and a decline at appraisals and development advisory. Profit was 2.3 million down year-over-year, which on a comparative view was primarily impacted by higher employee compensation costs, acquisition and related costs due to REVs, our planned restructuring activities, and changes in our financing costs. Adjusted EBITDA was down 19.2% due primarily to lower earnings and property tax. And free cash flow was up 96.4% on an as reported basis over last year, which as you might recall included the impact of our ERP transition. If we were to compare it to Q2 of 2022, which may be a more appropriate benchmark, free cash flow was up 45.6%. Additionally, I would like to highlight that in Q2 we recorded $2.6 million in restructuring costs, impacting our analytics and appraisals and development advisory business segments, as well as our corporate functions. This reflects our ongoing efforts to operate more efficiently and rebalance investments towards future growth initiatives. Now turning to our business segment performance. Analytics continues to grow, putting up both top line growth and margin expansion. Revenue growth is driven by our ongoing transition to cloud subscriptions, new sales, a higher number of assets on our valuation management solutions platform, and contribution from the ForBerry acquisition. The double-digit improvement in adjusted EBITDA reflects higher revenues, operating efficiencies, and our ongoing cost optimization efforts. Recurring revenue now represents 93% of our analytics revenues in the quarter. This is compared to 89% in the prior year. These revenues are comprised of solutions that are embedded in our customers' most critical processes and therefore represent resilient revenue streams with low churn. Recurring revenue grew at 5.5% or 4% organically. Argus and VMS performance was resilient. The moderation in recurring revenue growth reflects softness in data solutions related to lower transaction volumes year over year. As the macroeconomic conditions improve, we expect recurring revenue growth to ramp. Nonetheless, as we've demonstrated over the past several quarters, Recurring revenue continues to grow, even on lower bookings days. You'll hear more from Jim on that in a bit. Our margins continue to expand, up by 210 basis points in the quarter, in line with our expectations. We continue to expect a more meaningful ramp in the second half. We remain committed to our plan to achieve 400 to 500 basis points of annualized margin improvement this year. This will be driven by revenue growth and lower expenses from the continued build-out of our global service center in India and the four-year benefit of our restructuring activities. Turning to property tax, given our recent announcement about the divestiture of this business, we intend to move future results into discontinued operations next quarter, at which point we will no longer review the segment's performance. Property tax in Q2 was flat, and adjusted EBITDA was down 34%. As you may recall, the strength in Q1 reflected some Q2 opportunities getting pulled forward, notably in the U.S. Canada in the quarter was up, and in the U.K., although we had $8.3 million of contributions from annuity billings, Our performance is impacted by both a mix of lower value settlements and ongoing throughput constraints at the valuation office agency. The decrease in adjusted EBITDA reflects higher compensation expenditures as well as geographic variances of our revenue and related cost base on a year-over-year view. And finally, appraisals and development advisory revenue and adjusted EBITDA were down. Similar to what we saw last quarter, the performance reflects muted market activity in the current economic environment as the business segment has some exposure to reduced transaction volumes and higher interest rates, resulting in fewer appraisals and fewer new project starts. Now turning to our balance sheet, we finished the quarter with a cash position of $49.5 million and with $306.4 million in bank debt. Funded debt to EBITDA leverage ratio is defined in our credit agreement was 2.11 times. Applying all of our cash to net debt to adjusted EBITDA leverage ratio was 1.97 times. Our current total liquidity stands at 293.1 million. Additionally, the planned divestiture of property tax business will significantly enhance our financial flexibility with an estimated 600 million in net proceeds. It will enable us to invest organically via acquisitions and analytics, return capital to shareholders, and pay down debt to target levels. Pat, I'll turn it over to Jim.