Altus Group Limited

Ladies and gentlemen, thank you for standing by. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to Altus Group's first quarter 2025 financial 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Camilla Bartosiewicz, Chief Communications Officer. Please go ahead.

Thank you, Abby. And hi, everyone. We're sorry for being a couple of minutes behind. We understand there's still a few people trying to get in, so we just wanted to make a little more time. Well, welcome to the conference call and webcast discussing Altus Group's Q1 results for the period ended March 31st, 2025. Our press release MD&A financial statements and the slides that accompany our prepared remarks, they're all 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, our CFO, Pavan Chhabra, as well as Rich Sarkis, the President of Software and Data. 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 materials. Please be reminded that Altus Group uses certain non-GAAP financial measures, ratios, total of segments measures, capital management measures and supplementary and other financial measures as defined in National Instrument 5212. We believe that these measures may assist investors in assessing our investment in our shares as they provide additional insight into our performance. Readers 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 in isolation or as substitutes for financial measures prepared in accordance with IFRS. An explanation of these measures is detailed in today's IR material. I would also like to point out that unless otherwise specified, all percentage and basis point growth rates we report to on today's call will be on a constant currency basis over the same period in 2024. And okay, over to you, Bevin.

Thanks, Camilla. And thank you, everyone, for joining us today. Altus had a solid start to the year, delivering recurring revenue growth, steady margin expansion, and improvements in cash generation. Let me hit some of the highlights. Analytics total and recurring revenues were up. Consolidated revenue was modestly down, impacted by the appraisals and development advisory segment. Profit from continuing operations improved by 47%. Adjusted EBITDA was up 29.7%, driving a 280 basis point margin improvement. Both cash provided by operating activities and free cash flow were up meaningfully over last year. And the comparative period last year included a contribution from property tax. Turning to the analytics business segment. Total revenue growth was led by Argus Intelligence. As discussed last quarter, we've been winding down some non-recurring revenue lines of business. We're really pleased with the consistent improvement in adjusted EBITDA, which reflects high quality of revenue, operating efficiencies, and our ongoing cost optimization efforts. Recurring revenue is a key metric for our performance. Argus and VMS revenue streams have very low churn with retention rates above 100%. Q1 recurring revenue was up 2.1%. Argus software growth was strong. VMS growth was modest as expected. As you recall, there's seasonality to VMS. Historically, Q4 represents our largest quarter for VMS revenue. Our margins continue to expand up 200 basis points in the quarter above guidance. Drivers of our margin expansion include revenue growth, our portfolio optimization efforts, efficiencies from our global service center, benefits from restructuring activities, and our overall expense growth moderation. We're steadily driving towards our FY2026 target of approximately 35%. Turning to analytics new bookings, this metric reflects new and incremental business. We're pleased with a 34.3% improvement in recurring new bookings, which included strong software bookings and a $5 million of the $15 million three-year subscription agreement with Ryan Tax. Excluding this deal, recurring new bookings growth is 3.1%. Turning briefly to our cloud adoption rate, Having reached 90% of users contracted on the cloud, we are now retiring this metric from our external reporting. Finally, at appraisals and development advisory, as CRE transactions remain muted, revenue came in lighter than guidance. However, our restructuring activities are paying off, driving 1.3 million improvement in adjusted EBITM T1 in line with guidance. Transitioning to the balance sheet. On the sale of the property tax business in January, our cash position at the end of the quarter increased to $491.9 million. We had $158.9 million in bank debt at the end of the quarter, representing a 1.44x funded debt to EBITDA ratio. During the quarter, we deployed $76.3 million towards a share buyback. reducing our outstanding shares to 44.4 million. We also reduced our debt by 127 million and a quarter. Restructuring costs for 6.2 million and dividend payments for 6.5 million. Cash from operations continues to be strong, driven by improvements in working capital. We expect our cash conversion to improve throughout the year as our restructuring efforts take hold. With that, I'll turn it over to Rich Sarkis, President of Software and Data, to discuss Benchmark Manager.

Thanks, Robin. I'm happy to be here, and I'm proud to announce that we launched Benchmark Manager in Q1. Benchmark Manager is a significant addition to Argus Intelligence and builds on our previously announced Portfolio Manager capability, which was launched last September. Industry benchmarking has traditionally relied on backwards-looking, static, and generic averages to track performance. Now, with Benchmark Manager powered by what we believe to be the most comprehensive valuation data set, users can immediately see how their assets and portfolios stack up against the market. Crucially, this enables CRE professionals to track their portfolio's performance across markets, asset classes, and at different points in the cycle. This provides powerful insight into what is driving movements in value right down to the individual asset level. ultimately enabling users to drive portfolio performance and mitigate risk. We have been very encouraged by client interest and the quick pipeline build. With that, over to you, Jim.

All right. Thanks, Rich. Hello, everybody. Very happy to be back in Toronto. I think it was two years ago I sat in the room and said, go Leafs. My similar guys from out west were trying to convince me last night to say, go Oilers. I guess Toronto's more of my Canadian home, so I've got to stick with Goli. Very happy everyone's here. All right, guys, our strong performance in Q1 demonstrates the continued execution of our growth initiatives and our commitment to delivering value to stakeholders. As you heard from Pavan today, the team's delivered strong financial results. Resilient recurring revenue performance and sustained margin expansion has been a consistent theme. Our operational improvements and ongoing portfolio simplification is translating to higher quality earnings compared to a year ago. This drove strong improvements in cash flows. In Q1, we returned capital to shareholders by repurchasing $76 million for shares. Operationally, we delivered significant new bookings growth. I'm very pleased with the adoption of Argus Intelligence and its add-on capabilities. We have currently over 1,300 clients contracted on Argus Intelligence, and signed dozens of new asset-based pricing deals in the quarter. We hit our 90% cloud conversion target. This was partially driven by a large service provider agreement with an asset-based pricing structure, which includes Argus Intelligence and 4Berry Solutions. This represents the future state of our commercial contracts, allowing unlimited users and driving expanded adoption within our clients. Releasing Benchmark Manager at the end of the quarter was a key strategic and operational milestone. With this capability, Altus demonstrates its unique position to help clients drive performance. Benchmark Manager will also make our internal teams significantly more productive. During the quarter, we integrated ForBerry with the Argus Calc Engine for modeling multifamily assets in the US. This connects ForBerry data to our platform while delivering enhanced functionality for our ForBerry users. This also expands our addressable market, particularly in the U.S., with our initial focus on the multifamily sector. As a reminder, ForBerry brings simplicity of use through its Excel interface. Looking ahead to the rest of the year, we remain committed to executing against our guidance, which anticipates a steady improvement in market conditions, representing a stronger second half. At the same time, we recognize that macroeconomic volatility, particularly surrounding tariffs, could introduce uncertainty. That's why we're staying closely connected with our clients, monitoring leading indicators, and adjusting our operations as needed to navigate the evolving landscape. We remain bullish on the long-term prospects for Altus Group, driven by strong secular trends in commercial real estate, compelling new product innovations, a refined pricing model driving client adoption, an exceptionally strong balance sheet, and a dedicated team committed to delivering value. Before I open up the line for questions, I'm pleased to share that we're planning to host an investor day on September 9th in New York. We think that will be the right forum and time to discuss new metrics. Stay tuned for more details to be shared in due course, and we hope you can join us. Okay, let's open the questions, the lineup for questions, Abby.

Thank you. And if you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one if you would like to ask a question. And our first question comes from the line of Stephen McLeod with BMO Capital Markets. Your line is open.

Thank you. Good evening, everyone. Just wanted to ask about the benchmark manager, which, you know, it's interesting to hear about that from Rich. You know, just curious if you can share a little bit about initial feedback from clients and kind of, you know, how you see that product evolving over the next year. you know, 12 months or next few years?

Great question. Thanks. We're really excited with the client feedback. We've talked to hundreds of customers over the last several months and quarters as we developed this and figured out what really they were looking for that they didn't have. And the response has been really solid. Now, of course, we'll continue to iterate on that in a very rapid fashion, but the response has been very positive.

Okay, that's great. And just to clarify, I mean, that's a live product that you're currently selling right now?

Yeah, that's live. We launched it in Q1, and we'll look to evolve it over the next few years.

Yeah, great. Okay, thank you. And then I just wanted to ask about the – you cited in your recurring revenues just a new contract with Ryan – And I just wanted to confirm, I think probably just say that's a multi-year contract. And do you expect that to continue to have similar contribution as you think about the rest of the year or over the next few years?

Yeah, it's a good question, Stephen. As you recall, we had said that the deal was it's a three year contract for for Dan types solutions that would contribute about 5 million per year. And then obviously we're looking forward to continuing that relationship with Ryan tax at the conclusion of this first iteration of the contract.

Right. Okay. That's great. And then, and then just, just lastly for me, just on the Q2 guide guidance, can you talk about just some of the revenue components around the analytics expectation for you know, one to 3% total revenue growth? kind of what's, you know, what the components are into that.

Yeah, look, we're, you know, we're continuing to keep a very close eye to the macros. With that said, we're pretty comfortable with regards to our guidance for Q2. We're going to continue to, you know, see positive momentum as we saw in Q1 on Argus intelligence and the software elements of the revenue component. we are seeing modest growth in VMS. And as you know, a lot of VMS is tied to the timing around asset deployments. And in the current macro environment, while we're still seeing growth, the growth is not as robust as software. And so as you think about the guidance, we're thinking about Q2 is really a continuation of the momentum that we built in Q1. Continue to see good did momentum on the software side and modest growth in BMS?

Steve, let me add to that on the components. If you recall from last quarter, we talked about the fact that we sold some non-core businesses in analytics, which brings down the overall growth rate, but it's why we particularly emphasize the higher quality revenue that we have now. And we are also very deliberately not pursuing non-core data clients, and we are not heavily pursuing non-recurring service agreements. So there's a lot of focus going on here on the high margin recurring core client activities.

Great. That's good incremental color, Jim. Thank you. Okay. That's great. Thanks so much, guys.

Thank you.

And our next question comes from the line of Richard Say with National Bank Financial. Your line is open.

Yes. Thank you. Just kind of wanted to get an update in terms of your conversations with clients today in terms of when they're thinking market to recover. Is it still largely around rates, and I guess now tariffs, or is there something sort of more specific to the CRE market?

Now, you nailed it, Richard. It's, the clients are, they're, we did a, we had a webinar today. So what we're seeing from clients is we're seeing actually improvements in underlying NOI and in valuations, including in office, which is an interesting turn in several quarters in a row. So that's a point of optimism amongst our client base. Of course, being able to predict their cost of capital is a little trickier, so we remain cautious on that. And as I said, we're staying very close to the clients on the leading indicators for us here, and we will manage the bottom line very closely as we always do. So on the recovery, everyone in the world is watching. It can change day to day, but with what we know right now about some of our clients' activities and with the new products coming out, we feel good about our guidance range and we have flexibility around that guidance to maintain our margins. So we're still banking on a back half of the year that we kind of work through the volatility that we're seeing right now and that things stabilize by the time we enter the second half.

Okay, great. And I guess sort of in a related question, have any of your clients or have you observed any kind of permanent structural changes in the market, and if so, how those changes would inform your decisions to invest in certain areas of product or R&D?

Yeah, I see a positive structural change, which is there's more private debt available, so liquidity in the market is good, and that has us doubling down on our focus on making sure we are tailoring particularly our Our VMS services to the particular needs of the debt side of the market, and we continue to grow clients and funds there and we'll continue to build out our expertise in debt.

Okay, and then just the last 1 for me, I think you've talked about. acquisitions in the past and you clearly have quite a bit of capacity now from a balance sheet perspective to do that. Can you just sort of remind us the areas that you're most focused on and is the market for valuation today looking more compelling, you know, given that sort of soft backdrop or have they moved up, down, like stayed the same? Just curious to see what the update on that would be. Thanks.

Yep. It's there were As the whole market saw, there were a lot of prop tech darlings a few years ago that you saw us do our key strategic acquisitions, and you're now seeing those come through in our new product. So Reonomy is the heart of the Altus ID, which allows us to tie all of the models to the benchmarking. The Stratadem acquisition gives us the attribution analysis that provides that extra insight for our clients. Once you saw us make a couple and finance active put us on the debt side of things and ForBerry gives us that more of a global footprint and ease of use that expands our market. So outside of those key strategic acquisitions, you saw us really back off other than our attempt to go for REVs, which would have been a great acquisition. But other than that, you saw us back off because our perspective was valuations were extremely lofty. They didn't meet our IRR requirements and our hurdle rates for acquisitions. We maintain a very specific set of guidelines of how and when we'll pull the trigger on acquisitions and the financial hurdles and the strategic fit that they have to have. That said, valuations have come down significantly. And we're getting a look at interesting things, but we're in no hurry. We're going to take our time. We're going to be super smart about this. I don't feel like that cash is burning a hole in my pocket. And right now, we're very happy to be returning capital to shareholders through a very strong share buyback program.

Okay, great. Thank you.

And our next question comes from the line of Paul Treber with RBC Capital Markets. Your line is open.

Well, thanks very much and good afternoon. On your outlook for the year, there is back in a lot of growth and you did mention macro and new products. How quickly typically do you see new products ramp and which is the more important driver do you think of an improvement in growth for the back half of the year? Is it really those availability of new products? Is there pent up demand or are you anticipating that a macro improvement would underpin a lot of that growth.

Paul, that's a great question. So let me break that down into a couple of pieces. When we think about our growth algorithm, so I think the core of your question is how much is predicated on just organic market growth. And we do expect some. The Q2 guide that we just gave is exactly in line with the model when we gave the Q1 guidance in the full year. We are still on that model. Every month we do a bottoms-up field outlook by product line. So we know where the, and we do price times volume on that outlook. So we know where the assumptions could be a bit aggressive from the field. Hovind has modeled all of that out with sensitivities that give us a comfort level around our range. That said, if something like wild came out macroeconomically, we're not, our guidance range isn't handling or contemplating something crazy, but steady state and with the improvement, and I think people getting their head around the current environment, we think we have a reasonable set of volume assumptions. Now, we also, as we said, we have asset-based pricing deals, which give us an opportunity to lift our wallet share with clients because clients see the value in it that they can, they'll get a price bump, but their volume bump of number of users could be their whole business. So from an ARPU perspective for us, my team has heard me say I would be very happy to see our ARPU come down because our absolute revenues are going up from the pricing and we want our clients, we want to be adopting as many products as possible and we're making that as easy as we can for them to do it. Then we have new logos that we're going after. ForBerry, again, expands our addressable market into the non-heavy Argus user, but who needs valuation and wants those models tied to a platform. And then we have the new product take up and adoption. I am very bullish on Benchmark Manager. The entire architecture that we've been talking about in building the platform was so that we could deliver that product at scale with platform economics, and we've done it. And not only will it help our clients, but our VMS business and our appraisal business is an excellent proxy for our clients. So our VMS business does a tremendous amount of analysis for the biggest investors in the world. So we know what their requirements are. We help them manage their data and the platform and Benchmark Manager in particular was built to accelerate the time to analysis and decisions. So we're bullish on that. It'll really have a much bigger impact in 26 as clients are deploying more and more of Argus Intelligence, which Benchmark Manager has to sit on top of. The pricing, we're delivering the value with the asset base because their volumes go up. We do think volumes will come up in the second half. We'll add new logos from new spaces like multifamily, and then the new product adoption will be good this year. It'll really accelerate in 26.

Thanks for those details. In terms of the growth of asset base pricing, you mentioned dozens of deals. How should we expect that to grow from here? I mean, do you think you're just scratching the surface and ramp significantly? And is that an effect that you'll continue to give going forward so we can attract the adoption over time?

Yep. So on asset-based pricing, we actually, so for the very, very small end of the market, low end of the market, like one or two properties or assets, It's really not worth our client's time or our time to try to convert them. Or if they have one or two Argus licenses, we're just going to keep as frictionless commerce with them as we can and let them renew on a license basis. We didn't actually expect broad adoption from the service providers to have a marquee service provider move to asset-based pricing. We think that there's going to be a lot of fast followers from that. And it'll also help drive Forberry in the markets where Forberry is the best solution and Argus in the markets where Argus is the best solution. Without our clients having to go back to their IT groups every time ago, we'd like the budget to add one more user. It's back to as frictionless as possible. So we think the industry is going to follow fast on this.

Okay, that's great to hear. I'll pass on. Thanks, Bob.

And our next question comes from the line of Scott Fletcher with CIBC. Your line is open.

Hi, good evening. I'll ask one on capital returns, the buyback in particular. Obviously, it was really very active in the quarter. Could you just give us an idea of how you're expecting that to play out over the course of the year and, I mean, whether – you have a clear plan on timing and if that can change, I guess, whether other capital allocation opportunities present themselves.

Yeah, Scott, it's a great question. And as we said in some of the prepared remarks, we're extremely pleased with the traction that we made in Q1 against our NCIB. on the shared buybacks for the $76 million that we accomplished in Q1. If you recall, it originally positioned this, we said we wanted to do $250 million in shared buyback over the course of three years with a heavier rating, you know, $150 million-ish heavier rating in the first year. And obviously with this, the start that we have in Q1. We're well on that path, and we're going to look to continue to pursue that. We have a very good view in regards to valuations, and we're going to continue to take a significantly strong position in continuing to pursue that. From a year-to-date perspective, I can share with you That $76 million is now at $107 million, as if I believe closed yesterday. And so that traction continues. So look, we said we believe share buybacks is an excellent way to return value back to shareholders. We're committed to that. As Jim mentioned, you know, we're going to opportunistically look at other potential vehicles, potential M&A, but the cash is not burning in our pockets. And we believe that this year buyback is a great way to return that value back to shareholders. So that's the plan, Scott. Hopefully that answers your question.

Yeah, definitely. Thank you. And then I'll just ask on the margins, very strong in the quarter for above the guidance range. Is there anything that's specific to call out in terms of outperforming what you thought you would do? And then should we be expecting sort of maybe near the high end of the guidance range for the full year, given the performance in the first quarter?

Yeah, and look, the narrative around the margin expansion is not dissimilar from how we've talked about it in the past. And again, we continue to have a lot of, continue to be able to moderate margin. We have a lot of control and really focusing on what we can control. And again, when you think about it, you know, there's both the revenue and a disciplined cost management approach to it. So on the revenue side, you know, the cloud conversions continue to provide some degree of a tailwind, and that's going to continue as we move towards the full transition to the cloud. We are doing price-led growth in our valuation advisory upon renewals, and so that's going to continue to be tailwinds from a revenue perspective. And the price to value increases on our software subscriptions, plus the left that we're going to get from the new product launches that Rich just talked about. It's going to help us on the revenue side. On the cost side of the equation, Scott, if you remember, we did a pretty large restructuring last year. We're going to get the dividends of that restructuring flowing through for the full year this year. We are committed to continuing to grow the GSE in India. It plays a very crucial role in optimizing workflows, improving our delivery speeds, and really supporting our operational scalability. And so when you combine both the revenue and the cost management efforts, you know, we're pretty committed to being able to continue to scale our growth and feel comfortable that we've got several levers that continue to drive the margin expansion.

Okay, great. Well, good progress so far.

Thank you.

And as a reminder, it is star one if you would like to join the queue. And our next question comes from the line of Kevin Krishna Ratne with Your line is open.

Hey there. Good evening. I have a question on, you know, Benchmark Manager and maybe some of the AI products that you've got out there now. Can you maybe talk about adoption? Where do you see adoption rates sort of going? And more bigger picture, a lot of your customers may already have sort of in-house data science teams. How do you see your product, you know, in that context? Is it going to help support those teams? Is it going to be taking budgets? You know, as far as a budget for you, if more of their AI team strategy is leveraging products. I'm just trying to understand sort of the AI strategy and how you see it really fitting into your customers' strategies themselves going forward.

Yeah, Kevin, good question. Thanks for that. Let me just hit on a couple of the core value propositions of Benchmark Manager and then I'll talk a little bit about the AI component as well. One of the more fundamental value propositions of Benchmark Manager is leveraging that unique identifier, the office ID. to bring all of the data together. And that's something that even in-house a lot of our customers tell us is something that they need help with. So that is a core value prop that I did want to talk about. And then, of course, it's the quality and the granularity of the benchmark and the depth and breadth of the benchmark and the ability to go down and drill down and understand why certain assets are under or overperforming versus a hyper-relevant set of comp properties. is something that comes through very clearly with Benchmark Manager. And of course, given that it's powered by the aggregated, anonymized Argus and VMS data, that within a specific client, they obviously don't have the breadth of all of that, really helps to differentiate that as well. In terms of AI, building on that and moving that forward to recommendation engines, that not only show under or over performance, but then help to suggest action to ultimately drive performance is something that we are heading towards as well.

Got it. Thanks for that. Super helpful. And then maybe just the last one for me, just on the recurring new bookings, I think you mentioned excluding the Ryan contract, 3% growth. I think that quite a slowdown from what you saw in Q4. I might be reading the MD&A incorrectly. Correct me if I'm wrong there, but it just looks like the recurring new bookings was a little bit lighter, excluding that contract. So I'm just wondering if you can explain that trend there. I know it's really hard to kind of the way that you disclose the bookings. It's not really the greatest comparison, but you just talk about the trends that you're seeing there, because I think you did mention software growth as being sort of strong in the quarter.

Yeah, Kevin, we did say that software growth was strong. It's one of those that I wish we disclosed the pieces of it, but as you know, we're going to move away from bookings, which is internally, we're much more focused on ARR and NRR at this point. And as I said, we'll start introducing those metrics at Investor Day so that we can explain exactly how we do all of them. But the Argus software growth was really impressive for us in the quarter. I was shocked given the market environment. On the flip side, the VMS growth was not there, which is completely predictable in this interest rate market because the VMS clients are kind of on a wait and hold on transactions. Overall, we're seeing complete transactions across the market, like transactions of all sizes. We're down over 7% year over year. So where that manifests itself is in the growth of VMS. So to put up the 3% growth, excluding the data contract in this market with VMS flat is a really strong performance for our software business.

Okay, yeah, I hear you. That all makes sense, Jim. Thanks. Appreciate it. Pass the line. Thank you. Okay, thank you.

And as a reminder, it is star one if you would like to ask a question. And with no further questions at this time, I would now like to turn the conference back over to Mr. Jim Hannon for closing remarks.

All right, well, my closing remarks is thank you, as always, for joining us. We are always available for the one-on-ones and follow-ups. We look forward to talking about the quarter and what we see the rest of the year, and hopefully most of you can make the investor day in September. So thank you, and we'll talk to you soon.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.