Q3 2024 Altus Group Ltd Earnings Call
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Keri: Good evening, my name is Keri and I will be your conference operator today. At this time I would like to welcome everyone to the Office Group's third quarter 2024 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.
Keri: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. Camilla, you may begin your conference.
Speaker Change: Thank you, Kerry. Good afternoon, everyone, and welcome to the Conference Scholar webcast discussing Altus Group's third quarter results for the period ended September 30th, 2024.
Speaker Change: Our disclosure materials, notably the press release and DNA and financial statements, as well as the slides accompanying our prepared remarks, are all available on our website and, as required, have been filed to CDER Plus after market close this afternoon.
Speaker Change: I'm joined today by our CO Jim Hannon and our CFO Pawan Chhabra.
Speaker Change: 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 maturely from those projected.
Please refer to our forward-looking information disclaimer in today's materials.
Speaker Change: Please be reminded that all this group uses certain non-GAAP financial measures, ratios, total segment measures, capital management measures, and supplementary and other financial measures as defined in National Instrument 52-112.
Speaker Change: We believe that these measures may assist investors in assessing an investment in our shares as they provide additional insight into our performance.
Speaker Change: Readers and listeners are cautioned that they are not defined performance measures and do not have 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.
Speaker Change: These measures should not be considered in isolation or as substitutes for financial measures prepared in accordance with IFRS.
Speaker Change: An explanation of these measures is detailed in today's IRM materials.
Speaker Change: I would also like to point out that unless otherwise specified, all percentage and basis point growth rates we refer to on this call today will be on a constant currency basis over the same period in 2023.
Speaker Change: Additionally, in Q3 2024, the results from property tax have been classified as discontinued operations.
Speaker Change: Accordingly, all amounts, except for free cash flow, net cash related to operating activities, and funded debt to EBITDA ratio, represent results from continuing operations. We have also restated certain historical numbers on the comparisons to exclude property tax.
Speaker Change: Okay, over to you Pawan. Great, thanks Camilla and thank you everyone for joining us today.
Pawan Chhabra: Recapping our Q3 results, revenue was moderately up driven by growth at analytics, which accounted for 79% of our consolidated revenue base.
Pawan Chhabra: In Q3, we recorded $2 million in restructuring costs globally across the business.
Profit from continuing operations was negative 2.9 million.
Pawan Chhabra: This includes the finance costs associated with our bank debt, the amortization of our acquisitions, and one-time costs related to restructuring.
Pawan Chhabra: adjusted EBITDA was up 23.5 percent driving a 300 basis point improvement in margin
Pawan Chhabra: Past generation, which reflects both continuing and discontinued operations, was down year over year.
Pawan Chhabra: For context, you might recall that Q3 last year was a quarter when we saw significant improvements in our backlogs of accounts receivables that had built up during our ERP transition in the first half of FY23.
Pawan Chhabra: On a year-to-date basis, net cash related to operating activities was up 106.5%, and free cash flow was up 154.6%.
Pawan Chhabra: The strength in cash generation was fueled by continued strong adjusted EBITDA growth and improved working capital processes.
Pawan Chhabra: This resulted in a significantly higher conversion of adjusted EBITDA to free cash flow over last year.
Pawan Chhabra: Turning to the analytics business segment, we continue to deliver both top-line growth and margin expansion.
Pawan Chhabra: Revenue growth was driven by our ongoing transition to cloud subscriptions, new sales, a higher number of assets on our valuation management solutions platform, and contribution from our forbearing acquisitions.
Pawan Chhabra: The double-digit improvement in adjusted EBITDA reflects higher revenues, operating efficiencies, and our ongoing cost optimization efforts.
Pawan Chhabra: Year-to-date, both revenue and adjusted EBITDA are up by approximately $14 million.
Pawan Chhabra: Recurring revenue is a key metric for our performance. It comprises a low churn revenue base made up of solutions that are embedded in our customers' most critical processes.
Pawan Chhabra: We continue to focus our go-to-market efforts and investments to maintain consistent recurring revenue growth.
Pawan Chhabra: 94% of our analytics revenues were recurring in Q3 and recurring revenue makes up 74% of our consolidated revenue base from a continuing operations perspective.
At $95.4 million, recurring revenue was up 7%.
Pawan Chhabra: The Q4 macro environment is tracking the same as Q3, and as macro conditions improve, we expect recurring revenue growth to gradually ramp.
Pawan Chhabra: Earlier today, we held a webinar going over the NACREF Odyssey data, which encouragingly showed that open-ended funds returned returns turned positive in Q3 for the first time in two years.
Pawan Chhabra: All sectors except office saw a gain supported by improving cash flows and more stable valuations.
Pawan Chhabra: Our margins continue to expand, up by 560 basis points in the quarter and 320 basis points year-to-date.
Pawan Chhabra: We remain committed to our target 400 to 500 basis points of annual margin improvement this year, which factors in for a seasonally stronger Q4.
Pawan Chhabra: We expect margin improvement will be driven by revenue growth and lower expenses from the continued build-out of our Global Service Center in India, as well as a four-year benefit of the restructuring activities.
Pawan Chhabra: As you might recall, our medium-term target is to achieve 35% margins for fiscal 2026.
Thank you.
Turning to Appraisals and Development Advisory.
Pawan Chhabra: Revenue continues to face headwinds as the business segment has some exposure to reduced transaction volumes and higher interest rates, resulting in fewer appraisals and new project starts.
Pawan Chhabra: While we navigate the challenging macro conditions, our focus has been on profitability, where we achieved a 4.7% improvement in adjusted EBITDA.
Pawan Chhabra: We're encouraged by this year's rate cuts in Canada, but it takes time for that to flow through the industry. So we expect it will be more of a gradual, steady recovery through next year.
Pawan Chhabra: Alongside our ongoing restructuring efforts, we took additional steps this quarter to optimize our Canadian appraisals business by consolidating resources.
Pawan Chhabra: This included withdrawing from certain non-core markets and services, as well as exiting low-margin engagements.
Pawan Chhabra: We believe these adjustments will enhance our ability to serve our Canadian clients more effectively and allow us to concentrate investments on higher priority areas that are more valuable to them.
Pawan Chhabra: With that, I would like to point out that we modified our business outlook for this segment, now expecting a high single-digit decline for revenue and mid-single-digit decline for adjusted EBIT out for fiscal 2024.
Thank you.
Pawan Chhabra: Finally, I'll recap with our balance sheet. We finished the quarter with a cash position of $39.6 million and with $306.1 million in bank debt.
Pawan Chhabra: The funded debt to EBITDA leverage ratio is defined by a credit agreement, which still factors in EBITDA for both continuing and discontinued operations was 2.07 times, well below our maximum capacity of 4.5 times.
Pawan Chhabra: Our total liquidity stands at $283.5 million. Additionally, the planned divestiture of property tax business will significantly enhance our financial flexibility with approximately $600 million in estimated net proceeds.
Pawan Chhabra: It will enable us to invest both organically and inorganically, return capital to shareholders, and pay down debt to target levels. With that, I'll turn it over to Jim.
Thanks, Pavan. Thanks everyone for listening to our call today.
Jim Hannon: In Q3, the office team has once again demonstrated resilience and innovation.
Jim Hannon: We've been growing our analytics recurring revenue despite transaction volumes remaining under pressure.
Jim Hannon: Our teams have delivered consistent growth, margin expansion, and new product innovations that will continue to drive value for our clients.
Jim Hannon: In September, we held our Altus Connect conference, where we hosted clients discussing the most pressing topics in our industry.
Jim Hannon: At the conference, we introduced Argus Intelligence, which includes new capabilities that expand Argus use cases into performance management. I'll say more on that in a few moments.
Jim Hannon: Over the last several years, we've been heavily engaged with our clients to understand their requirements.
Jim Hannon: The overwhelmingly positive feedback regarding the new product launch validates the strategic direction and importance of our roadmap.
Jim Hannon: Now let's discuss new bookings, a metric that reflects new and incremental business.
Jim Hannon: While bookings can be an indicator of sales activity and customer sentiment, the book-to-bill time has changed significantly over the last few years with the change in economic conditions.
Jim Hannon: As it is difficult to precisely model timing of revenue associated with some components of the bookings metric, we may choose to phase out this metric as an external reporting item in Fiscal 25 and replace it with a more predictive measure.
Jim Hannon: That said, we're pleased with the 29.3% improvement in recurring new bookings year-on-year.
Jim Hannon: Argus software bookings have been consistent and modestly improving each quarter of 2024. VMS had a very strong bookings quarter in Q3.
with several large deals fueling the growth.
Turning to our cloud adoption operating metric.
Jim Hannon: We continue to steadily transition legacy clients from on-premise software to Argus Cloud.
Jim Hannon: We ended the quarter with 79% of our AE users contracted on the cloud.
Jim Hannon: This is very close to where we expected to end the full year, so we're pleased with this progress as of Q3.
Jim Hannon: Now, I'd like to shift to Argus Intelligence and expand on my earlier comments.
Jim Hannon: Argus Intelligence was built to drive CRE asset and portfolio performance and was informed by our extensive voice of the customer work.
Consider it our next-gen version of Argus.
It is our new flagship product.
Jim Hannon: Argus Intelligence builds on the valuation modeling capabilities of Argus with new functionality and a modern interface.
with Argus Intelligence.
Jim Hannon: Clients not only have access to Argus Enterprise, but benefit from their Argus data being structured under an Altus ID.
Jim Hannon: Clients also gain access to asset manager functionality which allows them to analyze, compare, and stress test the performance of their assets.
Jim Hannon: Argus Intelligence enables users to easily compare modeling scenarios through simple graphic visualizations of their data.
Jim Hannon: In terms of use case examples, clients can now compare original acquisition models to current valuations and gain insight into the drivers of property performance.
Jim Hannon: Or, when comparing valuations against prior period, clients can quickly and precisely determine the impact from variables such as shifts in lease terms, changes in market rents, changes in sale price, or vacancy assumptions as a few examples.
Jim Hannon: Argus Intelligence addresses the pain point of unstructured and disjointed data with our Altus ID Entity Resolution.
Jim Hannon: We overlay that connected data with advanced analytics to draw actionable insights.
Those are now core capabilities embedded with Argus Enterprise.
As contracts renew,
Clients will transition to Argus Intelligence.
Jim Hannon: Beginning in Q125, all new Argus sales will shift from Argus Enterprise to Argus Intelligence.
Jim Hannon: In addition to the new core capabilities, we're introducing add-on functionality, Portfolio Manager, available now, and Benchmark Manager.
for the Q125 expected release date.
Jim Hannon: Portfolio Manager expands the Asset Manager capabilities at the portfolio level.
Jim Hannon: If you have a portfolio of multifamily, industrial, and retail assets, with Portfolio Manager you can, for example, easily identify how each asset class has impacted portfolio performance.
Jim Hannon: By creating dynamic collections of properties grouped by, say, property managers, you can track and measure the relative performance of those managers.
quickly identifying best practices as
Jim Hannon: With Benchmark Manager, similar to analysis we performed for some of our largest VMS clients today,
Jim Hannon: clients will be able to benchmark portfolios against a relevant Argus cohort and deep dive into attribution analysis.
Jim Hannon: For example, Portfolio Manager will get insight into performance versus benchmark due to segment allocation, cash flow generation or income effect, geographical mix, occupancy, tenant incentives, or OPEX.
Jim Hannon: Going back to client requirements, our clients specifically asked us to help them with core data management and analysis that will help them drive higher performance and better manage risk.
Our disintelligence enables faster, better decision-making.
Jim Hannon: With the launch of our new products, we're transitioning to asset-based pricing, similar to the pricing structure we employ in VMS.
Jim Hannon: Upon renewal, most investor clients will see a moderate price increase to reflect a significant increase in core capabilities of the product.
Jim Hannon: Along with enhanced functionality, this structure also encourages and enables clients to use Argus Intelligence much more widely across their organization without driving incremental per-user pricing.
Jim Hannon: This should drive improved workflow, collaboration, and data integrity throughout our clients' processes.
Jim Hannon: Portfolio Manager and Benchmark Manager will be optional add-ons with an additional cost per asset.
Jim Hannon: As a final note regarding our product portfolio, we continue to integrate ForBerry into our platform with bidirectional compatibility with Argus.
Jim Hannon: Clients are excited about the Excel-like We believe this functionality will also expand our addressable market.
Jim Hannon: As I wrap up and we prepare to close out the year, I would just like to thank our teams for a very productive year.
Jim Hannon: Financially, despite tough market conditions, we're sustaining analytics recurring revenue growth and margin expansion, driving higher free cash flow.
Jim Hannon: Operationally, we're ramping up our Global Service Center in India and building out our sales organization and go-to-market plans under the leadership of our new Chief Revenue Officer, Dan Hurley.
Jim Hannon: Dan and the team will drive growth, margins, sales productivity, and process improvements with the changes they are implementing for 2025.
Jim Hannon: Technologically, we bolstered the Altus Intelligence Platform with new analytics capabilities that will drive value for clients and make our teams more efficient.
Jim Hannon: A heavy lift this year was connecting our Argus datasets under a Common Altus ID, enabling advanced analytics to extract new insights.
Jim Hannon: We continue to simplify our portfolio, focusing on high-quality asset and fund intelligence solutions.
Jim Hannon: In addition to our previously announced property tax divestiture, we refocused our appraisal services on our highest value opportunities, and we've entered into an agreement to divest Fairway's Guarantee, a non-core product we inherited through the finance acquisition.
Jim Hannon: That agreement is to sell Fairway's guarantee for approximately $12.1 million.
Jim Hannon: We remain committed to our current share buyback program, having deployed approximately 11 million towards share repurchases in Q3, and we hope to materially increase that after the tax transaction closes, having earmarked 250 million for buybacks.
Jim Hannon: And finally, we continue restructuring actions and realigning our investments across the P&L towards our target operating model.
Jim Hannon: as reflected in our FY 2026 targets for the Pro Forma new office.
Jim Hannon: We're positioning the business to drive high single-digit consolidated revenue growth, expanded consolidated margins to 24% to 26%, and increased adjusted EBITDA to free cash flow conversion to between 65% and 70%.
Jim Hannon: We've transformed office over the past couple of years, and we have more work to do.
Jim Hannon: We've demonstrated our focus, we've simplified operations, and we've updated our infrastructure.
Jim Hannon: We modernized our product architecture and we're positioned very well for what we expect to be steadily improving market environment over the next few years.
Okay, Kari, let's open the line up for
Speaker Change: At this time I would like to remind everyone if you would like to ask a question please press star then the number 1 on your telephone keypad. Again for any questions or comments please press star 1 now. Your first question will come from Yuri Link with Conocor Genuity.
Thank you so much.
Good evening, everyone.
Thank you.
Thank you. Bye.
Nice bookings number.
Speaker Change: I thought we'd start with that since it's gotten so much attention over the last little while.
Can you just kind of break down
Speaker Change: the driver of the 30% in recurring between VMS and software bookings and just as a backdrop maybe touch on how transaction volumes trended in the quarter as well.
Speaker Change: Yeah, I'll just break down all your pieces of that question.
Speaker Change: So, thanks for the acknowledgment on that, Yuri, and as I've said in various quarters...
Cookings are lumpy, as you know, you very well know.
Speaker Change: When bookings are way up, we're not overly exuberant. When bookings are way down, we think that the market overreacts to bookings just based on that book-to-bill.
Speaker Change: conversion that I was talking about earlier. So it's it's a it's a great number. I don't want to downplay it overly, but
But bookings come in lumpy throughout the quarter, so...
Speaker Change: Q3 from last year might be a Q4 this year, but we'll take it.
Speaker Change: In the breakdown, as I said, the AE bookings have been wildly consistent throughout the year with improvement throughout the year. Not massive in the current environment, but growing each quarter on quarter. So we're very happy with that performance.
Speaker Change: The outsize growth in Q3 is due to several very high-quality VMS transactions where clients have
purchase portfolios that are going from
Speaker Change: one type of fund structure into a fund structure that requires VMS. So this book to bill should be
Speaker Change: much faster than what we've seen over the last couple of years, so I'm feeling really good about that. But a couple of those large transactions, again, can move the needle just based on the timing of prior year. But.
Speaker Change: Again, we'll be introducing new metrics that we review as a management team all the time that we get out of the new systems that we put in place that will just, it'll be much more highly predictive for you guys modeling out the business.
[inaudible]
Speaker Change: Okay, that's helpful. As far as transaction volumes in the quarter, for Q3,
Speaker Change: U.S. transaction volume was down nine and a half percent again based on our data. Year-to-date that puts the transaction volumes down about ten percent. Canada is still trending a bit worse than that.
Speaker Change: But our research team for Canada would be putting out a webinar next week. So we'll be updating Canada specifically.
Speaker Change: Okay, helpful guys. I'm going to hop there. Thanks very much.
Thank you.
Thank you. Thank you.
Speaker Change: Your next question will come from Daniel Chan with TD Cohen.
Daniel Chan: Hi, your press release calls out a higher number of VMS assets contributing to the recurring revenue growth. Also, the bookings sound like it's up from...
Speaker Change: strengthen that VMS business. Do you think we've turned a corner here and expect the VMS business to continue accelerating? You mentioned some of the Odyssey data points there, but anything you can point to in the data points you see in your cloud and whether it's model data or telemetry data that support your view?
Daniel Chan: Yeah, Dan, it's a good question. The fact that assets are up, some of that's working through the book and stock log from prior years. So you are seeing that waterfall, even though it's at a slower rate.
Daniel Chan: Are we at a turning point? It's great to see the odyssey returns turning positive, so that's a good sign. The reason we focused, when we announced the tax deal, we focused on FY26.
Daniel Chan: was two things. One, we think that although we're in a better interest rate environment, which got even better today in the U.S.,
Daniel Chan: that it's going to take time for that to work through the system and land in transactions. So as Pawan said, steady growth through 2025 and 2026, that's where we see analytics going to double-digit growth.
As we break down our growth algorithm...
the VMS clients of our existing clients
with picking up, with transactions picking up.
Daniel Chan: And I think our clients will accrue assets at a disproportionately good rate to the market. That will be helpful. But 25, as most of our clients have been, public clients have been out saying,
Daniel Chan: It's going in the right direction. It's steady growth. Q3 and Q4, we feel like it's a bit more of the same. We expect our Argus...
Daniel Chan: As we said, it's been getting a bit better every single quarter. We expect that, especially with the new product portfolio that we've launched. But the VMS business, yeah, feels like it's turning positive.
Speaker Change: That's great to hear. You also mentioned that you purchased $11 million of shares in the quarter. I think that this is the first quarter you've started to do that.
Speaker Change: Maybe this is a question for Pawan, but how do you think about repurchasing shares versus your other uses of capital? Thank you.
Yeah, I will.
Speaker Change: As we mentioned, our uses of capital are both to invest organically and inorganically in the business and to accelerate our growth. We also look at it from returning value back to shareholders. So that's also in the form of the dividends that we give as well as the share buybacks.
Speaker Change: We're not cash constrained, so we have a lot of flexibility in regards to our capital allocation framework. And as we've mentioned, we have...
Speaker Change: a pretty rigorous DCF model that we built up for the business. We have a good indicator of where we think our intrinsic value is. And so we'll continue to look at the share buybacks.
Speaker Change: from a perspective of opportunistically buying. It's not necessarily buying at any price, but we're going to look at it from a strategic perspective of when we feel we're within the range of where the trading is happening below intrinsic value.
Speaker Change: But it is a core component of how we're thinking about returning capital back to shareholders.
Speaker Change: Going forward, as Jim mentioned, we talked about a $250 million buyback program over the next couple of years, and that's something that we're committed to. But again, we're being smart about how we buy back shares.
Sounds good. Thank you.
Speaker Change: Your next question will come from Steven McLeod with BMO Capital Markets
Great. Thank you. Good evening, guys.
Speaker Change: I just wanted to circle around on the bookings, you know, understanding that it is lumpy and I guess, you know, would that comment kind of account for, you know, what we saw in terms of year-over-year growth for recurring bookings over the last few quarters, you know, like Q1 was up.
Speaker Change: I see Q2 down, Q3 up. I mean, is that just the inherent lumpiness that we're seeing?
That's it. See you.
Speaker Change: Exactly, and it's why Clement and I don't get too excited in one direction or the other.
we're looking for.
Speaker Change: study improvement, but that foot to build, we still have a good backlog to work through from VMS. Those clients have committed that when they deploy those assets, those assets are coming to us for evaluation services, so
as they're identified, like so...
Speaker Change: Cap rates are getting to a point where assets are attractive, our clients are the smartest investors in the world, and
Speaker Change: They're going to time this appropriately, looking at, you know, their cost of capital and what they expect on future.
Speaker Change: on future rates and the impact on their purchasing capabilities. Our recurring bookings have been...
Speaker Change: fairly consistent when we look at the average over the last four quarters and we know where our de minimis level of recurring bookings need to be to hit our models and to hit our 26 numbers that we've put out there and we're in good shape.
Speaker Change: That said, I would love to retire this because of the lumpiness, and I think investors overreact in both directions.
Yeah.
Speaker Change: I see that. Okay. And then just, you know, you've talked about new bookings running at that like $20 million level.
This quarter was was a bit higher than that.
You know, and based on some of your commentary around
Speaker Change: Your client's beginning to be more active in the marketplace. I know transactions were down, but you talked about some outsized growth in Q3. Would you expect that new bookings baseline of $20 million to start to tick higher here, or is that something that it's maybe too premature to say that?
Speaker Change: Yeah, so we know Q4 has a seasonality effect to it that works in our favor.
Speaker Change: So, yeah, we expect the bookings to tick higher. We are...
Speaker Change: Internally we use more traditional SAS metrics. I'm not ready to get into declaring them on the call for external reporting, but you can just think
Speaker Change: cross-cell, up-cell, pricing, churn and we see those early indicators going in the right direction.
Speaker Change: Okay, that's great. And then maybe just- I'm shifting to in the future versus bookings, just to get away from the lumpiness.
Speaker Change: Okay, thank you. And then maybe just finally, just on the appraisals and development.
Speaker Change: business. You know why the big step down in in guidance I mean I mean the quarter was was a little bit weaker than we were expecting but not much do we expect things to really sort of get incrementally worse as you turn into Q4?
Bye!
No, again, I mean, part of it.
Speaker Change: Stephen, I mean you're talking about law of small numbers in regards to appraisals and development advisory so
Speaker Change: It doesn't take much of a swing for that number to materially change. And again, as we mentioned in our prepared remarks, we're narrowing the focus to go for more profitable growth.
Speaker Change: and so that there's a transition in regards to kind of that evolution and and so you know I would say those are kind of the two big factors is
Speaker Change: Small movements make a change from a growth perspective, and again, we're retooling these businesses to go for more profitability.
Okay. That makes sense. Perfect. Okay. Thanks, guys. Appreciate it.
Your next question.
Speaker Change: Your next question will come from Paul Traber with RBC Capital Markets.
Paul Traber: Yeah, thanks very much and good afternoon. Just a question on the shift in the AE sales to Argus Intelligence. I know it's not apples to apples, do you have an estimate of the implied change in pricing?
Yeah
Thanks for the question, Paul.
The change in pricing for
equity investors, it's
You think it's low-teams.
Paul Traber: But it's not everyone all at once, it's as their contracts come up for renewal.
Paul Traber: Or, if they want to jump to Asset Manager right now, which many of them do, so they're renewing ahead of their contracts, and several of them have seen that on the asset-based pricing
Paul Traber: They really like the concept of not being constrained with users.
Paul Traber: and being able to roll it out across a lot of their processes as I talked about because it improves their data integrity as they move from underwriting to budgeting and planning to acquisition analysis or disposals.
Paul Traber: Yeah, it's, but for the ones who have moved, it's low teens.
Thank you.
Speaker Change: Unless there's a wave of early renewals, in terms of the average duration of contracts in your install base at AE Contracts, what percent are contractually up for renewals in 2025?
[inaudible]
So that the
Okay, it makes sense.
Shifting gears. Shifting gears on the cost side.
Speaker Change: Just looking at the unallocated corporate costs, how are you thinking about shared services with the property tax business and do you see an opportunity to take down those allocated corporate costs as your business becomes more simplified going forward?
Paul Traber: Yeah, that's absolutely right, Paul. As we mentioned, there are some elements that are in corporate that support the property tax business and we're already in progress.
Paul Traber: to identify how we can continue to make sure that we exit with no stranded costs associated with the property tax sale.
Paul Traber: In addition to that, and as Jim had mentioned, we're building our plans based on a target operating model, which is anchored on best practices, on
Paul Traber: on benchmarking the right expense ratio to revenue ratios across the various corporate functions. And that exercise in and of itself is going to drive greater efficiencies for us over time. And so it is a big focus area for us.
Paul Traber: and we're on it and so you know that hopefully gets to your question Paul in regards to how we're thinking about it both from the domestic or the property tax business.
Paul Traber: and the work that we're doing. Well, there's still more work for us to do here, but wheels in motion as we think about 25 planning and then obviously in regards to the 2026 guidance that we've put out there.
Alright, thanks for taking the questions.
Your next question will come from Erin Kyle with CIBC.
and James Hannon. Thank you. Thank you.
Hi, it's Erin Kyle on for Scott Fletcher here.
Speaker Change: Maybe just a quick question on the guidance. The analytics guidance for 2024, 6-9% growth, that's unchanged. Can you just remind us if that guidance range factors in any expected market recovery in Q4? And are you expecting any significant recovery in CRE transactions for 2025?
Yeah, Aaron, it's a good question.
Speaker Change: Pavan was very deliberate in his comment that you know Q3 and Q4 market conditions we expect to stay the same. When we gave that range there was a lot of optimism in the market that that things would improve faster so
Speaker Change: we're comfortable that Q4 will look similar to the rest of the year as far as growth rates around recurring.
Speaker Change: Okay, thank you, that's helpful. And then maybe just one more from me, and apologies if you touched on this already, but with the finance active divestiture in the quarter, can you just walk through the rationale there and whether there's any other similar smaller assets or portions of assets that you're looking to sell off?
Thank you.
Thank you.
Speaker Change: Yeah, so, you know, as Jim mentioned, the divestiture, the Fair Wage Guarantees,
Speaker Change: It was a non-core asset that the finance acted, you know, it provided a suite of business corporate treasures to manage guarantees that they issued.
Speaker Change: and 90% of that business sat out of the debt and real estate segment, so it was really truly a non-core component for us.
Speaker Change: It was a small revenue contributor as well for the unit, and so we obviously took advantage of the opportunity to be able to put it up for sale.
Speaker Change: which, again, as you think about from our perspective, it gives us additional cash to be able to invest in our organic opportunities and think about how do we continue to fuel our R&D efforts.
Speaker Change: So it was really kind of a no-brainer decision for us in terms of the divestiture. Yeah, it was a capital allocation decision for us because that business was hitting a point where it was going to require R&D next year.
Speaker Change: And it didn't have the same growth or returns as other opportunities that we have.
Okay, thank you. I'll pass the line.
Thank you.
Speaker Change: Your next question will come from Richard C. with National Bank Financial.
Speaker Change: Yes, thank you. Sort of along the lines of that last question, I think I may have asked this last quarter, but you know you've sort of had a bit of time. I just wonder, is appraisals and development considered strategic still?
Speaker Change: Would that eventually or potentially be considered non-core at one point?
Speaker Change: Yeah, both of those businesses give us very good insight into
Speaker Change: our clients and how they're thinking about investing across their portfolio.
Speaker Change: they and there's a lot of free revenue activity going on in both of those businesses so our teams are out
Speaker Change: They are collectively appraisals and dev advisory together, helping clients evaluate things such as
Speaker Change: What are projected rents? What are their build costs? What are projected build costs? Can they get the return on investment that they'd be looking for? Should they do a refit out of a property? Should they tear down and rebuild?
Speaker Change: So, from helping clients figure out their own portfolio allocations, these are very insightful businesses for us.
Speaker Change: That said, the businesses historically chased top line, and we have
Speaker Change: better visibility into client profitability so as we do a stratification of client profitability we can focus in on the key clients that are also analytics clients
or should be analytics clients.
Speaker Change: and help them build out their portfolios and then evaluate impacts on valuation that we can model all the way through Argus Intelligence.
Speaker Change: Those clients also drive our very significant data clients of ours. So it is strategic from a holistic perspective.
Okay, great, thanks. My other question has to do with...
Speaker Change: the third of the base that's up for renewal next year can you share to the extent that you can the groundwork that you sort of laid with those customers to absorb those price increases that are coming?
Thank you.
Sure. Our teams, they start working renewals.
Speaker Change: quarters in advance of the renewal. Many of those clients were beta clients on the new products.
The other thing is from a...
Perspective of Argus Enterprise
as a percentage of their overall expenses.
It's nominal.
Thank you.
So...
Speaker Change: even though as Pawan said on the last question there's a lot of small numbers here so we've been putting
Speaker Change: tens of millions per year into R&D to help clients solve these data issues?
Speaker Change: And in solving those data issues, there's real hard cost savings that they will get.
Speaker Change: But the real impact is the faster decision-making on portfolio allocations that they can get out of this.
Speaker Change: The other thing is the adoption of Argus Enterprise across most client estates.
Speaker Change: was minimal. There are a few of our largest equity investor clients who do use us, they'll have
Speaker Change: hundreds of seats of AE for planning, but they were the exception.
Speaker Change: But that has not been a broadly accepted use case, so performance management and planning is secondary to acquisition evaluation for Argus Enterprise.
but the application of Argus into those workflows.
is undeniable.
So, all of those things put together,
Speaker Change: clients understand the value and we've had clients already move into the asset-based pricing.
Speaker Change: Okay and I guess like if I could sort of throw another one in and so as I look to next year and you sort of look at the growth projections like
Speaker Change: What would you say sort of the mix is coming from just I guess the progression of you know your sales motion versus the price increases? I'm just trying to understand like you know how would each of those contribute to growth?
Speaker Change: So, Richard, if it's okay, I'm going to answer from a little bit different lens.
Speaker Change: So, if we take our growth out of the resume, and everyone needs to hear this, I'm going to take the growth and break it down into what percentage comes from these different elements. These are not the growth numbers, but when we think about, when we take our 2025 projections,
our internal management plan and break it down.
It comes down to about...
20%
comes from a person named Mark
Speaker Change: The new logos and new for AE for data for VMS and new funds
Speaker Change: about 40% of it we look at as coming from clients expanding their portfolios or expanding their what would have been user headcount.
Speaker Change: And about 40% of the growth algorithm comes from this moderately higher pricing, but then the add-ons of portfolio manager and benchmark manager.
Okay, that's super helpful. Thank you.
Thank you.
Again, that is star 1 for any questions or comments.
Speaker Change: Kerry, I think we're good then. So let me just once again thank everyone for joining the call. As always please don't hesitate to get in touch with us through Camilla or Martin and I think this is our last time talking publicly to everyone so I hope everyone has
Speaker Change: a great set of holidays. I can't believe we're at that point already. I think I'm going to be at a go-least comment any moment now. So thanks everyone. We'll talk to you soon.
Thank you.
Speaker Change: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Speaker Change: and the American Pronunciation Guide Presents This is a recording of the program's This is a recording of the program's This is a recording of the program's This is a recording of the program's This is a recording of the program's This is the program's This is the program's