Q4 2023 Altus Group Ltd Earnings Call
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<unk> <unk> <unk>.
Question and answer session. If you would like to ask a question. During this time. Please sorry, one followed by the number one on your telephone keypad.
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I would now like to turn the conference over to Camilla. Please go ahead.
Thank you to any good afternoon, everyone and welcome to office groups fourth quarter Annual conference call a webcast for the period ended December 31st 2023.
Cause your materials, notably the press release, and DNA financial statements and the slides accompanying her prepared remarks.
All available on our website and is required has been filed to theater plus aftermarket closest afternoon.
Some of the remarks on this call and then our disclosure may contain forward looking information that is based on certain assumptions.
For subject to risks elephant teeth that could cause actual results to differ materially from <unk>.
Those protective please refer to our forward looking statements disclaimer in today's materials.
Please be reminded that also scripts use a certain non-GAAP financial measures ratios total of sediments measures capital management measures and supplementary and other financial measures.
Find the national instruments 52, 112th.
We believe that these measures may assist investors in assessing an investment in Russia as they provide additional insight into our performance.
Readers are cautioned that they are not suffice performance measures and do not have any standardized meaning andrae it for us and they differ from the similar computations as reported by other entities and accordingly may not be comparable to financial measures as reported by those entities. These.
These measures should not be considered in isolation or substitutes for financial measures prepared in accordance with diet for us and.
An explanation of these measures as detailed and today I I R materials.
I would also like to point out that unless otherwise specified off percentage growth rates, we referred to on this call today will be on a constant currency basis over the same period in 2022, However basis point margin expansion will be on an as reported basis.
Joining us today are C O. Jim headed are CFO, Pavis Chopra, who will review our financial performance as well as our Chief Technology Officer, David Ross, who will provide a brief update on our technology roadmap. Okay. It's over to you Jim <unk>. Thank you everyone for joining us today.
<unk> 23 was a highly productive your process group I wanted to begin by expressing my gratitude for the unwavering dedication of our team members around the world.
In the face of the dynamics theory and macroeconomic backdrop.
To remain focused on what is under our control driving operational excellence maximizing operating leverage strategically positioning ourselves to serve the industry with advanced analytics.
The strength of our motto was validated by your continued growth during one of the most challenging CRE cycles in decades.
Several initiatives such as being a implementation of our New York P system.
<unk> of our new Global Service Center in India.
Has been stored textbooks.
<unk> performance platform and the addition of for Mary had been transformational to our business model.
You'll hear more about our analytics capabilities and innovation roadmap from David later in the call.
Our full year results as presented on five five speak to the teams disciplines and submitted execution of our strategy.
2023.
He grew recurring revenue double digits in a challenge market reached standard analytics margins by 360 Pips and.
And we effectively manage through the property tax annuity reset in the U K for context on that.
Sword, the bulk of the 33 million dollar annuity revenue stream loss to finish the year down.
$5.5 million.
R 2023, net cash provided by operating activities payment of 71.4 million below are 22 results, partially due to higher interest expense.
However, free cashflow finished at $58.9 million, a 12% increase versus 2022.
With much of the heavy lifting your P upgrade initiatives now behind us our Capex came down to 12, and a half million versus $24.5 million in the prior year.
The net result is an increase in our adjusted EBITDA to free cashflow conversion rate to 44% compared to 39% in 2022.
As our cash from operating activities accelerates, we will continue to prioritize organic growth investments.
To mystically pay down debt and maintain financial flexibility for acquisitions in stock repurchases plugin will now stand on the financial performance.
<unk> and good afternoon to everyone on the call.
2023, a revenue grew by 2.2% to 772.8 million up Sir.
7%, if we weren't exclude the impact of the UK property tax cyclicality.
You can reset was also have a significant factor in the 4.2% decline in adjusted EBITDA.
Injustice G P S, which for the impacted by increased borrowing cost driving a 13.2% decline ear over here.
Our fourth quarter performance with strong.
Retrieved improvements in revenue profit and notably free cash flow, which doubled to 40.1 million our highest quarterly level on record.
Turning to our business segment performance.
<unk> continues to drive top line growth and market expansion.
Revenue growth was driven by our ongoing transition to cloud subscriptions and the addition of Asshats on our valuation management solutions platform.
Due to the high interest rate environment, the conversion time for bookings to revenue in the D. M. S. Dot net has been a long hated and our clients navigate during this period of asset price discovery.
This load the rate of revenue growth over the last several quarters.
Fantastic EBITDA benefited from higher revenues and improved operating leverage cover more of that in a few slides.
Recurring revenue represents 90 per cent of Oriental My next revenues.
Revenue. These are comprised of mission critical solutions with relatively high switching cost.
These are resilient revenue streams with very low Chan.
Our our our Argus contracts are multi year subscriptions.
Vms recurring revenues also represent multiyear contracts based on asset volume.
<unk> itself or the change in value more specifically does not impact the revenue generated from that asset.
Action volumes do not impact the installed base revenue in the analytics segment.
Our margins continued to expand prior by 40 basis points, and 360 basis points versus Q4, and four year 2022, respectively.
Be improved margin demonstrates our operating leverage and our focus on taking necessary actions to achieve our target operating model across all parts of the analytic segments.
For 2024, we've made further adjustments to our capital allocation within analytics, giving us confidence in driving greater margin expansion throughout the year.
We ended the year with 74% of our Argus enterprise users contracted on the cloud. This represents at 10 percentage point improvement from a year ago.
Our transition to argue cloud continues creating more revenue growth opportunities in 2024.
We expect to see the same level of conversion in 2024 as we did in 2023.
Turning the new bookings.
Metric captors incremental new business growth.
Unlike recurring revenue the timing of bookings can fluctuate, particularly in this current macroeconomic environment.
That's sad.
More than 2022 levels.
Still adding new business.
Bookings in queue for health study about 25 million dollar range and importantly, we added nearly 20 million a recurring you bookings in queue for that added to our Vms backlog.
While they're significant cash on the sideline that's been raised for CRA investment.
I'd ask spreads are still line of elevated in transaction activity remains muted.
These factors aside CRE is still a stable and growing asset class.
Recovery is on the horizon.
Is the market begin to stabilize we're well positioned to capitalize on the recovery.
Convert aren't growing backlog into revenue.
Turning the property tax.
Q for revenue growth in the U S and the U K was offset by declines in Canada for the Ontario cycle extension is impacting brown.
If this new cycle resumes next year, which is what we're expecting this should drive growth in late 2024 2025.
Property tax adjusted EBITDA reflected higher compensation and ongoing investments and our cyber security and tax system support infrastructure.
Geographic next of our revenues all of a sudden negatively impacted the margin percentages in order.
And finally appraisal and development advisory revenue and adjusted EBITDA for data and a quarter.
This sector hard business has some exposure to produce transaction volumes, resulting in fewer pretzels and these projects stars.
Turning to our balance sheet.
Finished the year with the cash position at 41.9 million and with 308.6 million in Baghdad.
Find it that the EBITDA leverage ratio as defined in our credit agreement with 2.06 times.
Our cash.
Okay adjusted EBITDA leverage ratio was 1.98 times.
Our balance sheet as strong, allowing us to invest in growth Essentials plan <unk> acquisition and the buyback of shares as we showed in 2023.
With respect to the <unk> acquisition, we continue to expect to close the transaction and the first half of this year.
It is highly strategic acquisition that will be.
Contributing tied margin recurring revenue.
<unk> growth and margin profile.
It will bill aren't part of our high value asset intelligence or to our strategy.
And it bolsters, our blue chip client base with a target buyers for advanced analytics capabilities.
Okay Mohammed <unk> <unk>.
Okay, let's dive into our business outlook.
Looking ahead and as expressed by some of our largest clients. We expect that's theory macro pressures will begin to use by the second half of the year.
And his interest rates and credit conditions begin to stay with us.
There should be a catalyst for pick up in market activity and lead to the record levels of dry powder beginning to get deployed.
Which we expect will translate into new bookings growth that accelerated conversion of our Vms back logged into revenue.
Stable or improving interest rate environment bodes well for our business, where our valuation expertise data and analytics tools will play an important role in the price discovery process for our clients.
Given the dynamic environment, we find ourselves in we're providing a more prescriptions proscriptive outlook for this year.
Beginning with the analytics segment.
We expect single digit growth in the first half with growth ramping in the second half.
Me driven by macroeconomic factors.
We expect full year recurring revenue to increase between 8% to 12% versus 2023.
This includes contribution from four Berry, which is not yet incorporate reps.
<unk> noted when risk closes that business will be accretive to both revenue in margin and our analytics segment.
With respect to earnings having delivered 26% growth in 2023, we are confident in our ability to keep growing adjusted EBITDA in 2024, we plan to expand annual margins, but 400 to 500 basis points.
Beyond 2024.
With an anticipated market recovery and revenue contribution from new analytics capabilities.
We expect recurring revenue growth to return to the mid teens with continued margin expansion.
Turning to the consulting businesses.
Revenue growth of property tax is expected to be temporarily muted and the low to middle mid single digit growth range in 2024.
We have strong opportunities in the U S with the expansion of eye exam link.
UK annuity will continue to bills, however, that'll be offset by weakness in Canada, given the Ontario cycle extension.
On the earnings side.
Targeting between 50 to 200 basis points of marginal pregnant.
Wide range that balance is growth investments with prudent expense management.
We are aligning our investments to leverage our technology and offshore capabilities to drive ongoing margin improvements.
Beyond 2024 property tax will have another strong multi year run.
Assuming that Ontario expenses, a new cycle in late 24, 25, we expect property tax revenue growth will accelerate with higher operating leverage with growth in all three countries.
<unk> low single digit revenue growth will.
We'll be focusing on client profitability with a view of improving the bottom line.
<unk>, we're planning for a double digit improvement and adjusted EBITDA.
We expect corporate costs will be up in 2024, due to regulatory and compliance requirements related to reps.
Putting it all together at the consolidated level, we expect to deliver single digit revenue growth.
Double digit adjusted EBITDA growth.
And overall margin improvement at the consolidated level.
Before we opened up the line for questions I'll turn it over to David Ross for a brief update on our offer of innovation roadmap late last year David.
Expanded role as our Chief Technology Officer.
In his initial role as Chief Information Officer, David led the rebirth of our front middle and back office infrastructure and it's been consulting closely with the teams designing the office performance platform.
Having previously worked with David if I go and call credit.
Confidence that is deep expertise in product development will fuel the next wave of innovation for office.
<unk>, it's a pleasure to be here.
How's your card from us over the past couple of years, we are on a mission to provide our clients with intelligence to the service could help start off with performance unresponsive capabilities. This mission is the cornerstone of our offer roadmap.
2024 is the year on your performance as punishment capabilities to start to come to life commercially.
The hands of our people.
Expanding into performance management throat, <unk> as well with the most immediate value to our clients begging us tour to their decision making.
This will also significantly expand our addressable market.
Drive the next phase of our growth.
Beginning in the second quarter will evolve our market insights offered by improving our client access to higher quality data.
This is the most essential ingredient to deliver better performance.
<unk> that will be augmented by August structured through our a I powered S. D resolution all of it made accessible through a unique identifier that <unk>.
Next throughout the second quarter, we will build upon the data.
Upcoming release of our portfolio performance offer will augment the August experience with performance a market based analytics capability that is high priority for our clients.
Our valuation management solutions.
Center stage in the third quarter.
We have a quick are professionals with access to a high powered recommendations of comparisons that will increase delivery speed and.
Reliability of valuation intelligence.
This will be foundational to Australia to sell it <unk> Vms resources, particularly as we integrate with reps.
Finally, we will close the year with further it helps us to our portfolio performance offered we will have a high powered performance benchmarks and protects us along with scenario based business planning capabilities.
With the ultra as performance platform in place we have a strong foundation deliver on this room up we have the right textbox ample sources of intelligence and have refocus our R&D skill set with the addition of data <unk>.
Most importantly archives are engaging with us on the most strategic efforts Henry influencing our offer roadmap and ensuring alignments with market demands.
We look forward to sharing more at a future investor day to demonstrate these new capabilities with our clients adult disconnect in September.
With that I'll turn it back to you.
Thanks, David.
We covered a lot of ground today, So let me wrap by summarizing.
Profitably despite a challenging market.
Demonstrated this in our twenties twenty-three results.
Analytics business is poised to deliver outsized earnings growth even at the bottom end of a recurring revenue guidance range.
Is David just laid out for us we have new performance analytics capability is launching this year.
We will be the consumers of our own innovation and put these hands and the tools of our people as David said driving more efficiency and lowering our cost to serve as we deliver intelligence is a service.
We expect longer sales cycles for the next few quarters.
Based on customer collaboration we expect a roadmap will drive new opportunities with existing clients, while expanding our addressable markets of all aspects of the CRE industry that focused on improved asset performance.
Finally proved operating leverage in the upcoming innovation driven growth will continue to expand our cash generation ability.
Maximizing free cash flow is one of my most important measures of success.
Meaningful cash generation supports capital allocation optionality.
This includes deleveraging post stress.
Increasing capacity for growth investments and M&A and the opportunity to return capital to shareholders via buybacks.
Your first question comes from the Rang a few in a link with <unk>.
Your line is open.
Good evening everyone.
Clarity on you guys just some clarity on the guidance.
I I think I think you said the high end.
Contemplating a recovery and CRE.
In the back half of the year, maybe just expand on what the what the low and would imply and more importantly, what are your internal indicators, telling you about about next year I mean, this was pretty detailed guidance.
You haven't given before.
So maybe just share the thought process and then we'll give you the confidence to come out in such a volatile market was fairly precise guidance for analytics.
Alright, Thanks Jerry.
So let me address the wide give guidance right now.
It's important in the last year as the the cycles changes of our bookings waterfall has changed I think it's been harder for investors to model out the business.
And.
Certainly we have we have some more.
The ability of metrics sister.
What we believe those growth numbers are going to be.
So we thought we'd take some the guessing out of it for investors and provide guidance, we're not planning to getting into the guidance business by a quarter.
The the first you know the the.
Current growth rates remaining through the first half and then accelerating the second half.
As as far as we're going to go on that and May or may not your guidance next year. We started in this environment. It would be more helpful for investors to understand what we're seeing so to your point on the low end and high end. The high end would look more like a recovery starting.
Q3, Q for the low end of the guidance really reflects our queue for growth rates plus for Barry.
Okay. That's helpful.
It doesn't get talked about much but you're SG&A.
15% last year on 5% revenue growth and I know you guys talked about.
Cost control as a reason for the good analytics margin so.
Where is that why is SG&A up so much last year and what's what's a good run rate going forward.
While the SG&A lamb's across all the business units as you know.
Big part of our increase in SG&A has been our continued investments in cyber.
Cyber security in our data protocols or data governance to make sure that we are we are keeping the corporations.
<unk> more importantly, keeping our clients data safe. So we think that that is a good investment on behalf of.
Ill constituents.
The the.
So.
As far as thinking about how to modulate going forward.
Alright.
Bottle that how we're thinking about the analytics margins and yeah throughout last year with USA R capital allocation strategy was drive 300 steps.
We've we've shown we can do that for two years straight.
Comfortable with the the fifth guidance expansion and analytics and tax and then on the corporate side.
We're just planning for the Rev acquisition could drive some some heavier compliance costs that we need to prepare for it.
Uhm that will have the benefits for the company for years to come so and those right now.
We're showing it we're talking about it on the corporate costs and adjusted EBITDA. Some of those costs given that their revs related could end up.
Outside of adjusted EBITDA, but we're <unk>, we're being conservative right now and assuming it's hitting the adjusted EBITDA line.
Okay. That's helpful I'll turn it over.
Thank you.
Next question comes from the line of caffeine <unk>.
<unk> sure.
Okay.
Hey, there guys Uhm just a question on on on the guidance and again sort of related to the the <unk> question. They're just can you remind US you know again and the confidence in the in the back half I know you you you you record bookings and then that takes some time to translate is is.
Is the revenue growth that you you know you're seeing potentially coming in to it is that already in the bookings or is it in sort of the confidence in the conversations that you're having with your customers that they will start to deploy more in there might be some more bookings you know growth coming in like Q1, Q2, Q3, I'm just trying to understand.
Like how much of the revenue do you already see in sort of contracts or bookings that you've already sort of contract that you're interested in you have to be deployed.
So we don't want these bookings to accelerate much if any at all to to to hit the low end of our range here. So the high end of our range is if.
Assets get deployed at a at a faster clip than they did in 2023, but if we put up the same cloud conversion.
On the Argus side and the same asset growth that we saw in twenty-three versus 22.
We risk and and then with with some.
Modest growth from.
New capabilities that gets to the bottom of the range.
And that.
Modest growth of new capabilities as to the installed base where.
Scientists are collaborating with us already.
Got it and then.
The comment that you made at the very end of your prepared remarks on the longer sales cycle over the next couple of quarters <unk> Vms for sure. But are you also then seeing that on Argus and add ons like seat expansions are you seeing.
Is that would that commentary also related to sort of what you know other companies are seeing with regards to sort of a softer macro.
Yes, yes, it's the low end of the range assumes that.
The market stays pretty much consistent with Q4.
The high end of the range assumes that it comes back so.
Or on the software side of our clients are split between investors and service providers.
So the service providers clearly they will track more with transactions transactions come back in the air people that'll be a driver of seats, but.
The current the current clip of August.
<unk> Grove.
In Q4 is what we're modeling through most of next year.
Got it okay.
Maybe just one more focusing on on analytics. The the margin expansion, you're expecting four or 500, you know faster than this I think before we were thinking about 300.
Every year, so get to see their where where are you getting.
Any savings or cost savings there because it sounds like you know, there's some step up and maybe R&D in Q2 Q3 on some of these new initiatives.
They were just talked about it also on the call I'm, just curious where the where do we think about the savings coming in.
Yep.
Yeah <unk> yeah.
<unk> mentioned to you all yeah, there's a there's a lot of.
Opportunity for us to continue to drive a lot of our delivery capabilities offshore and that's a big focus area for us.
Analytics businessmen awesome and the tax businesses around teasing Sadvantage tapas accelerate our margin expansion story.
We're also very focused on realigning our target operating model across the business that includes.
The support elements that go into the analytics margin number more went form being down theory uhm.
Careful in regards to how we ground with scale and make sure that we can continue to contribute to empty.
After the analytics business and so it it's a it's a mixed with how we go into business in regards to the.
<unk> of our resources between onshore and offshore this more or less.
Ah more judicious approach in regards to how we're scaling at the non owned cost per se within the business.
Okay Alright.
Alright, Thank you approximately.
Our next question comes from the line of <unk> with a capital J.
<unk> okay.
Hi, Good evening I'll start on the tax out of business and ask <unk> first question there.
What could you.
Can you comment on in the way of the U K and your recycle build in 2024, and how do you see that progressing pubic over a multi year cycle.
33 million peeks out we just.
Shuts down from which houses spelled shaping up compared to your expectations and historical.
It's.
24, 25 are ramping too similar curves as we saw on prior cycle resets.
And it will run right through 26.
If the cycle doesn't get extended like it has.
In the UK in the past or like it hasn't Ontario down.
So it's tracking too.
Former curves.
Other parts of the UK business actually grew very.
Very nicely around the reset.
So we're still adding a new clients at a good clip.
And we are sowing as we sign up new clients were selling them on the the the.
The 23 list as well as the 20th six list so the teams driving.
Good productivity.
The customer acquisition cost trial.
That's helpful <unk>.
Took the analytics segment for a second question and are there ways, you're prepared to adapt to a dynamic macro like offers that.
That should either you know sell more aggressively or you know ones that could be.
Easier to to communicate with the client and call. It a a more hawkish or dovish environment like are there ways of thinking about changing the strategy two the year or.
Is it pretty settings stolen with with the way things are going to be rolled out three quarters.
Well it's.
We're not going to be packaging the offers differently. So it it really is predicated on the delivery of the roadmap.
The things Davies discussing as far as Q1 are very far along and.
To add on to Kevin's last question that problem was answering a large a good amount of the a P. P development that heavy lift.
Is behind us.
So that's sort of the shifting of or the art expenses don't need to grow at the same rate as revenue.
Throughout 2024, it because a lot of heavy lift is done and now it's shifting skill sets over to adding more data science and data analytics capabilities. So it's.
As those people come on and and.
You do the data science and the the metadata of the files that are in Argus and then the Vms data that's what will drive the advanced offers new insights for our clients as.
As we were talking about is there going through price discovery.
Okay. That's a hopeful I'll ask one more probably more directly with my previous question, but in those conversations with clients on the offers coming to market.
Pardon me.
Eric derives how those conversations have gone.
And what's your appetite for the clients to pick them up you know in this environment what clients are saying about.
New and innovative offering job come to market.
So in terms of the conversations that we have already been having with time and in many ways capability that we deliver three services today.
They are interested in getting access to the expunction that they get through our artists information so being able to provide data on a much better scale, allowing them to greater comparison understand their performance punishment in through the out of the market level as well as something that they have showed interest over an extended period of becoming something about three hours.
No it is.
Momentum and new conversations and how they can begin to explore that into their own organizations.
Okay, great. Thanks for the color on the technical side.
Okay.
So I thought I was gonna say just the top guys that this is very much leverage.
Our investment in reality that we made a couple of years ago. The technology that we brought through that so goes the combination all the knowledge Croft capability that gives access to the data the different levels and the old society, which was stolen.
Additional research will be <unk> attached to recover data and information are on assets in a much better way is we provide the AI driven resolution.
Okay.
Next question comes from the line <unk>.
B M O capital Mike.
<unk>.
Thank you everyone lots of color. So far so I appreciate that just wanted to follow up on a couple of things just with respect to the tax business Juliet incremental insight on the the tax the Ontario tax reassessment delay and sort of when when you think that will.
Come back to kind of flowing into revenues any dog.
Okay. The last person to comment on the Ontario political drivers of the Theresa.
There. There's still you you you live here you know, it's a fluid situation.
Should.
Should Ontario decided this pushing twenty-five which is what looks most likely they're still growth opportunities for us late in 24 as you look at pre roll type Appeals.
Our team is all over that our our Ontario based team also is.
Heavily involved with the government.
Okay.
Okay. Okay, great no. That's that's helpful. Thank you.
Mmm, just turning to the the analytics business.
Correct.
Okay, great and along the lines of Rubs I mean, I know I know the deal hasn't closed but have you been able to have any incremental conversations with what the team there.
Integrating with the team at at at at all disorders that sort of off limits until until the deal is closed.
That that is off limits until we get through regulatory approval.
Yeah, Okay, Okay, Great and then and then just finally, you know not really talked about much about the appraisals and development advisory business. It just stood out to me that that you were expecting double digit growth and adjusted EBITDA in fiscal 2024 on on low single digit revenue growth. So just curious if you can.
Give some insight into what the major drivers are on that stronger than <unk> EBITDA growth outpacing.
Revenue growth.
Great question Steve.
With our new system, we are much better visibility into client profitability.
And so.
When we.
When we stack rank.
Clients, we can see where where we have finishing returns and we're just going to choose like we could probably actually grow the top line faster, but we're we're drawing a hard line on the profitability per client, which is gonna move some.
Some of the very very low margin commodity business. After other players and we're fine with that we think that that's just.
It's just a good arbitrage for us so we'll focus on the top tier.
And we won't have to grow expenses at the bottom tier to chase low profit work.
I see so you're effectively just sort of drawing the line on profitability levels per client, okay that makes sense.
Okay, that's great well, thanks for the incremental collar guys appreciate it.
Okay. Thank you.
And next question comes from the line of Scott <unk> with C. I B C.
<unk>.
Yeah, Hi.
You bet Ya.
Analytics business potentially growing accelerating toward mid teens right into 2025.
How much of that or would the rollout of the new advanced analytics tool b, a significant contributor to that acceleration of growth or would it be more.
Macro backdrop, just continuing to improve it is 45.
Alright, Great question, Scott, there's there's there's three elements to it one.
There's the macro which again were taken the lead from our clients some of which are public and have have recently discuss their views on the market. We agree with them. We're seeing the same trends. The second thing is what are our private investor clients are telling us some of the activity we're seeing in their portfolios.
Second piece.
Is the work down at the Vms backlog. So we know that the waterfall. The revenue has slowed down but our clients have committed those assets to us when they deployed so.
Again, we're predicating all of our comments on stability the macro market stability. So we're assuming no major significant new geopolitical events that could disrupt supply lines drive inflation, which would impact interest rates, so assuming a stable or improving.
<unk>, we think the macro picks up and we think that our clients who are sitting on a large pile of drought dry powder I referred to that.
<unk> assets will disproportionately accrue to our clients.
So working down the backlog, even without significant bookings growth next year.
Or significant bookings next year.
We're comfortable that 2025 is shaping up to be a good year. The last piece with to your question on new products, New products will come in will manifest themselves as.
Added capability, we can charge for.
But most of the Geneva based products and the ability to.
Extract more value because of all of the enhancements that we're putting in whether it's on the data products to the market inside products as we call them or whether it's on the Argus site itself or whether it's an advanced insights that we're delivering through Vms. So those three things really converge to provide a lot of valley.
Q for clients that we think we can capture.
Proportionate share of it while still giving the client's fee the outside share of the value that we're creating.
Okay interesting. Thank you and then a second question we have.
Are you looking to get the same rate of cloud conversion in 2024.
That sounds like it's down from your commentary last quarter when he talked about having substantially all of the complete by the end of the year is that is that an actual change in your expectations are mind reading too much into the change in wording there.
We think that you know getting us into the mid eighties is because the vast.
Majority.
Significantly complete so we would have we expected going into twenty-three before.
Silicon Valley Bank and all of that hit that we would have ended up higher with the clouds conversion. This year. So you can see that in our in our results, even though we're putting up.
Good good revenue growth numbers could recurring revenue growth numbers margin expansion, we thought it was gonna be better.
Remember the beginning of the year.
We we we're reaffirming our guidance around that long term $400 billion.
Close but.
It was it was down because of the macros, so the flip but the converse of that is.
The growth that we saw this year were saying same growth next year. So we're not.
The our cloud conversion is not predicated on a big change in the macro environment. So if we get that we could exceed that 10 point improvement that were saying, but our conversion that our revenue uplift in 24, the way we're planning it right now and have it at the low end of the guidance is that it's similar to the twenty-three <unk>.
<unk>.
Okay. Thank you I appreciate it so what agent twenty-three it becomes upside for 24.
Our next question comes from the line of forgiving <unk> Bitcoin right.
Okay.
Good evening, there's been a lot of effort in terms of elaborate.
Product coming out to expand into new client sector like reached lender isn't that maybe you can just provide us with an update on how this conversation's are progressing in weather pipeline is starting to build on top of this area.
Yes, thanks, Kevin.
And your question there.
So on the debt funds.
Continue to make progress continuing to sign up that funds as clients. So we're we're happy on that side of it and more and more of the debt funds are are related to are the same companies that have the equity funds and their L. PS are are asking for the same level of transparency on asset values that they have on the equity side.
So that that continues to go at pace.
The lenders.
They're using our data were involved with several of the regional banks right now.
I expect that will pick up that's an area of continued opportunity for us as David talked about.
Later in the year, we will have our AI powered valuation engine providing.
Providing <unk>.
Recommendations for our folks what that does is it allows us to serve a bigger client base at a different price point, then we serve our equity investors to them. So it won't be the same full white glove service, it's more portfolio triage, but we are we are working with them and that's.
What's driving the requirements for the roadmap items that David talked about earlier.
That's helpful and can we just again a little bit further into the offshore strategy can we get a more fulsome understanding of kind of how many resources, you're looking to add offshore kind of where we are in that strategy now and at the end of this year for.
<unk> <unk> Martin you know in the fullness of time.
So we the analytics business.
Was.
Probably 18 months ahead of the tax business and deployment you know starting to build the the G. S C strategy. So.
We're up to.
Couple of I don't have the exact number right in front of me or up to several hundred people in the G. S C.
On the the tax side.
We've been focused on we launched the tax JFC initiatives with the U S business first.
But we are now serving part of the UK market and we're <unk>, we're starting to ramp up service for the Canadian market with the G. S. C. So we have a few dozen people on the tax side, where we've got a couple of hundred on the analytic side.
Got it now how 'bout sorry.
Sorry.
Most of our growth.
Most of our headcount growth as we have attrition and as where where.
You can just planning for more efficiency most of the headcount growth is going into the GSC pretty much every function in the company now has a G F C strategy and that's core for our associates.
In India that they have full career paths that can serve in multiple functions versus just being in one function for one division. So we run we run that in the operation as a as holistically across all the businesses, even though they serve the processes of the individual.
Ms segments.
Got it that's very helpful <unk>.
<unk> fucking backlog as being a potential drive our towards that mid teens analytics growth and twenty-five it I guess.
Just from a high level is the backlog picking up that that with a better macro you you'd think the Emily E relate to that backlog could drive accelerated growth in 2006 and beyond.
Oh sure.
Yeah.
Alright, good to hear thanks, a lot.
Thank you.
And my last question comes from the line today.
B C kept on like it <unk>.
Oh, thanks, very much and good afternoon.
Your earlier comments on the the new offers that you're rolling out are helpful.
How should we think about the timing of the impact bookings and ultimately revenue.
Should we think about that as a catalyst for bookings growth in in 24 or do you think it'll take.
Should we think about it more taking a coupla years to ramp.
Over over a.
A couple of years Paul.
If we were if we were at a high transaction volume environment I would be more bullish on it.
But those those capabilities.
New offer capabilities.
Tuesday, we're the roadmap that David talk that to Chew things <unk>.
One at first and foremost when we talk about our own margin expansion is based on our own teams consuming and we set a couple of times put it in the hands of our own people.
It's our own service delivery teams demonstrating the value.
Of how they can run valuations faster provide more insights deeper insights.
As we automate a lot of the processes that we have going on for some of our largest clients today. So we expect to prove that through our service delivery.
And then standalone adoption of those those products.
As additional sales we see late twenty-four so really really driving growth 425.
Okay. That's helpful.
E. I think yesterday earlier. This week you did announce a valuation data set for Europe.
Can you speak to the traction that you've seen in Europe with Argus cloud and how you look at the opportunity for your your new offers in Europe.
Yep. So so two things are we talking about the Pan European data set.
We've been.
Building that data set for several years and that's you can see in the press release with.
<unk> quoted Julian Julian runs or Vms business for Europe, and handles our largest clients over there.
Several of which are also U S clients. So it's been awhile to get the.
Those clients to to contribute their data, but they see the value of it now as far as Argus cloud goes Argus cloud is more prevalent in the planning our European clients are some of our most complex clients because they're dealing with assets in so many different country. So.
Even if you're in one country, if you're gonna be dealing with asset managers and portfolio managers, who are using.
Different nomenclature to talk about the cost and expense associated with their asset performance. So that one of the key things that we do for our largest vms clients is we normalize that data so that they can benchmark themselves against all of our other data.
Key to what we're doing in Europe, right now our European Argus clients have been using Argus too.
To do just the same except they're they're they're exponentially their problems are exponentially larger because of the multiple jurisdictions. They work in on top of having multiple asset managers in multiple underlining GL systems. So has David talked about their their basic.
Data gathering of requirements and being able to link all their data together is still a fundamental problem that they that they have that we can nail solved for them using the office I D, which is the <unk> knowledge craft technology.
Just the other the other side of it.
Oh, I'm, sorry, I called the other thing I was just gonna add is that there's different valuation techniques by country and for very has actually been quite successful, particularly in the UK market. So we're leveraging the four very acquisition to to ensure that we're different valuation.
[noise] techniques are used in August is not.
Absolutely fit for purpose for that jurisdiction for very can be fit for purpose and that is how they they've grown their business and that's why it was such a great complimentary acquisition for us.
That's that's interesting thanks for those comments just lastly, how do we think about free cash flow conversion between 24 and also just going forward you know with the investments that you've made and.
New ERP system should we think about it as driving down working capital and Dsos versus maybe what you've done.
Historically.
Yeah.
That's a great question and as you know we did have.
Working capital pressure in Q1 in key to you is read transition.
Over to the new system last two quarters.
F <unk> the transition to the new system sustained tremendous dividends in regards Tim copying I simplify our processes driving productivity across our teams.
Dragging a very high level of throughput in regards to what we're doing in Q3 and P. For an art. Our view is that that level of of process improvement, it's going to continue to pay dividends for us as we had an can of 2024.
B, which volunteer Intel D.
D S. L is obviously.
C N N.
Having reported it it just it just trailing a number that except five corner average.
Yeah, we have a much tighter lands internally, let me look at the D. S sandwich on a quarterly basis announced that DSO numbers.
Improving significantly.
And so we will see D establish continued to improve as we.
Q1, and Q2 fall added a number in terms of the calculation, where we have the greatest level that means that.
What.
We are expecting a pretty meaningful cash generation inflection as we leverage the investments that we made in 2000 twenty-three and into 2024.
Okay. That's helpful. Thanks for taking the questions.
Thanks, Paul.
And do you have any other question comes from the line of <unk>.
Big National Bank financial.
Okay.
Oh. Thank you for taking my question here with respect to the conversion to the cloud are there any common attributes of those customers that have yet to convert or they sort of a larger insurer certain jurisdictions or certain markets.
The common theme is that they have contracts that run through.
End of 2024, and a 2025.
So some of them.
Or even some of the 2025 clients.
Given that a large.
A large portion of the ecosystem is already converted to cloud their older on Prem systems are not compatible and one of the major benefits of Argus is the collaboration on the files.
Cloud benefit is collaboration on the files.
So that's driving some of these larger clients. So we'll see we'll see step function moves on as some of these larger clients come across.
And which is why we're comfortable that is the 2024 will be the same rate of growth is 23.
Okay, Great and just one quick one here obviously, yeah. Thank you for the guidance. It's obviously I guess, we think it's tough to probably get those numbers nailed down but.
You seem very engaged with your clients and prospects and so another way.
Thanks for the business from a pipelines perspective is that what is your qualified sales pipeline looked like and how does that sort of changed you over a year. So maybe that kind of gives us an order of magnitude of how the underlying businesses are building up here.
Does the pipelines supports our comments of we think we're.
We.
We think we're.
Mid single digit growth for the first half so kind of similar to our <unk>.
R.
Q for performance, so we're modeling out our own investments assuming.
You know a similar level of bookings as as last year, which gets us to the low end of our range.
For the for the full year. So then if we if we see the pick up which the <unk>. We can see it in the pipelines. The pipelines supports the you know more of a back half pick up but.
But.
We think that the current environment rolls through for a couple more quarters.
Okay, great. Thank you for taking my question.
Alrighty and also the question at least 10.
You say Gee I'm hanging itching to call back.
Alright. Thank you. Thank you everyone again for joining us on the call. This evening is always please don't hesitate to get in touch.
Get two two Martin or Camilla is always.
We look forward to talking to you all soon thank you.
Okay.
<unk> you may now disconnect.
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