Q4 2024 Altus Group Ltd Earnings Call
Good afternoon, My name is John and I'll be your conference operator today at this time I would like to welcome everyone to the Altus group's fourth quarter and fiscal year 2000, instead of forfeit natural resources conference call and webcast all lines have been placed in be it to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask.
A question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to MS. Camilla Bartosiewicz Chief Communications Officer, you May begin your conference.
Camilla Bartosiewicz: Thank you and hi, everyone and welcome to the conference call and webcast discussing Altus group's fourth quarter and year end results for the period ended December 31st 2024.
Our disclosure materials, notably the press release MD&A financial statements and the slides accompanying our prepared remarks are all available on our website and has required have been filed to cedar plus after market close this afternoon.
Speaker Change: I'm joined today by our CEO, Jim Hannan, and our CFO Pavon Chopra.
Speaker Change: Some of our remarks on this call and in our disclosure made 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.
Speaker Change: Please be reminded that Altus group uses certain non-GAAP financial measures ratios total segments measures.
Speaker Change: Capital management measures in our supplementary and other financial measures as defined in national instrument 50 to 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 readers are cautioned that they are not defined performance measures and do not have any standardized meaning under high for us and may differ from similar computations as reported by other entities and accordingly.
Speaker Change: It would be comparable to financial measures as reported by those entities. These.
Speaker Change: These measures should not be considered in isolation or as substitutes for financial measures prepared in accordance with I for US an explanation of these measures as detailed in today's IR materials.
Speaker Change: I would also like to point out that unless otherwise specified all percentage and basis point growth rates, we referred to on today's call will be on a constant currency basis over the same corresponding period in 2023, okay over to you Kevin.
Kevin: Thanks, a lot and thank you everyone for joining us today.
Speaker Change: I'll focus on our.
Jim Hannan: Station on fourth quarter results and then Jim will review, the financial and operating progress for the full year.
Jim Hannan: Recapping, our Q4 results revenue was moderately up driven by growth in analytics, which accounted for 79% of our consolidated revenue base.
Jim Hannan: Profit from continuing operations was $22 9 million benefiting from higher revenues and a recovery from income taxes offset by the restructuring program and the impairment charge on our appraisal business.
Jim Hannan: Adjusted EBITDA was up 51, 8% driving an 800 basis point improvement in margin.
Jim Hannan: I would point out that this included a one time $4 5 million FX gain on corporate costs.
Jim Hannan: Cash generation, which reflects both continuing and discontinued operations was down year over year.
Jim Hannan: The year over year view, the fourth quarter of 2023 benefited from a catch up on billings related to the implementation of a new ERP system.
Jim Hannan: The decrease is also a function of higher cash taxes paid on higher profits and how.
Jim Hannan: Higher transition costs related to the property tax divestiture.
For the full year net cash provided by operating activities was up 11, 9% and free cash flow was up 23%.
Jim Hannan: The strength in cash generation was fueled by strong adjusted EBITDA growth and improved working capital processes.
Jim Hannan: This resulted in a higher conversion of adjusted EBITDA to free cash flow over last year.
Jim Hannan: As an aside in Q4, we recorded a $2 $9 million restructuring cost globally across the business, bringing us to a total of $12 1 million this year.
Jim Hannan: There will be a new restructuring program in 2025, as we rightsize the business following the sale of the property tax.
Jim Hannan: Turning to the analytics business segment, we delivered another quarter of top line growth and margin expansion.
Jim Hannan: Revenue growth was driven by higher sulfur and Vms sales as well as contributions from forbearance.
Jim Hannan: By a decline in nonrecurring revenue.
Jim Hannan: The double digit improvement in adjusted EBITDA reflects higher revenues operating efficiencies and our ongoing cost optimization efforts.
Jim Hannan: Recurring revenue is a key metric for our performance comprises a low churn revenue base made up of solutions.
Jim Hannan: And support our customers' most critical processes and workflows.
Jim Hannan: We continue to focus our go to market efforts and investments to maintain consistent recurring revenue growth.
Jim Hannan: 94% of our analytics revenues were recurring in Q4 and recurring revenue makes up 75% of our consolidated revenue base.
Jim Hannan: $101 1 million in the quarter recurring revenue was up five 8%.
Jim Hannan: Our software and BMS performance was solid.
Jim Hannan: <unk> by softer performance in data solutions, Jim will talk to this a bit more in his prepared remarks.
Jim Hannan: To ground you with some data points Q4 felt very similar to Q3 with respect to the industry backdrop and frankly, so does Q1.
Jim Hannan: Q4 U S transaction volumes were still suppressed. However, we are seeing some green shoots emerging.
Jim Hannan: For instance, U S transaction volumes, while still a decline year over year are seeing another quarter of sequential improvement.
Jim Hannan: Q4, net creep Odyssey data shows the open ended fund returns were positive again for a second consecutive quarter. After two years of negative returns.
Jim Hannan: All sectors, except off the shower gains supported by improving cash flows and more stable valuations.
Jim Hannan: We saw a very similar pattern in Europe through our Pan European valuation dataset.
Jim Hannan: European commercial property values also increased for the second consecutive quarter in Q4 of 2024, driven mainly by the industrial sector.
Jim Hannan: This bodes well for our clients signaling, we're nearing price discovery and that the markets are gradually entering a recovery phase.
Jim Hannan: Our margins continued to expand up by 630 basis points in the quarter, delivering a 400 basis point improvement for the year and analytics in line with our targets.
Jim Hannan: Our margin ramp continues in 2025 more on that from Jim Shortly because you might recall our medium term target is to achieve 35% margins for fiscal 2026 at analytics.
Jim Hannan: Now turning to analytics, new bookings this metric reflects new and incremental business.
Jim Hannan: We're pleased with the 10, 9% improvement in recurring new bookings, which included a sequential improvement on both software and BMS.
Jim Hannan: And as we've previously said bookings can be lumpy and conversions to revenue can take longer in this current environment.
Jim Hannan: Jim mentioned last quarter, we're evaluating phasing out this metric and our external reporting and considering replacing it with a more predictive measure.
Jim Hannan: And finally, we ended the quarter with 82% of our Rguest heater and contracted on the cloud.
Jim Hannan: Solid finish to the year and within our expectations.
Jim Hannan: Turning briefly to appraisal and development advisory while we faced some revenue headwinds our focus has been on improving profitability.
Jim Hannan: We achieved a $2 $1 million improvement in adjusted EBITDA in Q4 up 93, 4% over last year and all show good sequential improvement over Q3.
Jim Hannan: I'll wrap with a recap of our balance sheet. We finished the quarter with a cash position of $41 9 million and with $282 9 million in bank debt.
Jim Hannan: Our funded debt to EBITDA leverage ratio as defined in our credit agreement, which still factors in EBIT. After both continuing and discontinued operations was two one times.
Jim Hannan: Our current total liquidity at the end of the year was 309 million because you recall on January one we completed the sale of the property tax business, gaining approximately $600 million in net proceeds, which further expands our total liquidity and ability to invest.
Jim Hannan: More on that from Jim shortly.
Jim Hannan: That I will turn it over to Jim.
Jim Hannan: Alright, Thanks, Kevin.
Jim Hannan: Before we review the highlights of 2024, let's discuss what drives Altus group.
Jim Hannan: We are here to help our clients improve the performance of their portfolios.
Speaker Change: Powerful combination of advanced analytics and deep industry expertise.
Speaker Change: <unk> portfolio performance is driven by faster and better decision, making which is driven by data. Accordingly data is at the heart of everything we do.
Speaker Change: This strategic focus guides, our investment strategy and underpins our strategic initiatives.
Speaker Change: While the industry has been navigating a challenging CRE cycle, we've been positioning office is a leading provider of advanced analytics.
Speaker Change: 2024, we grew recurring revenue and delivered consistent margin expansion and analytics, we increased our free cash flow by 23%.
We simplified our portfolio by selling property tax.
Speaker Change: We connected Rguest models to the Altice idea on our platform via our knowledge graph technology.
Speaker Change: We launched Argus intelligence and bolstered its functionality for performance management.
Speaker Change: And we initiated a new asset based pricing strategy to enhance broader user adoption at our clients.
<unk> 2024, so the commercial realization of the foundational work completed over the last few years.
Speaker Change: Now much of the heavy lifting of the building phase is behind us.
Speaker Change: Financially in fiscal 2024, the company delivered steady revenue performance with strong improvements in profitability full.
Speaker Change: Full year revenue grew modestly while adjusted EBITDA was up 23, 7%.
Speaker Change: Recurring revenue was up six 4% with sales for our flagship offerings.
Speaker Change: <unk> and Vms, both growing faster than the six 4%.
As Kevin mentioned, the overall growth rate was offset by softness in data solutions.
The analytics business proved its earnings power and delivering a 20% adjusted EBITDA growth and 400 basis points of margin expansion.
Speaker Change: Full year margins were 28, 5% a record high for the business.
Speaker Change: This fueled strong cash generation driving an 11, 9% improvement in net cash provided by operating activities at 23% improvement in free cash flow with.
Speaker Change: With improvements in our working capital management and lower overall Capex, we're driving it's driving higher conversion.
Speaker Change: We remain committed to our free cash flow conversion target for 65% to 70% of adjusted EBITDA in fiscal 2026.
Speaker Change: With the sale of tax we have a very strong balance sheet, which provides significant significant optionality.
We take a disciplined approach to capital allocation.
Our core philosophy is that every investment opportunity must compete for capital based on its incremental return potential.
Speaker Change: We start with funding the P&L to a target operating model, where said differently targeted levels of investment for R&D sales marketing HR et cetera.
Speaker Change: We evaluate strategic acquisitions that accelerate growth enhanced data or technology or facilitate go to market activities. We look for targets that are ideally EBITDA accretive immediately and where we can delever back to target ratios.
Speaker Change: We intend to maintain a moderate level of debt to take advantage of favorable interest rates in the mid term, we aim to keep our leverage ratio within that two to two five times funded debt to EBITDA range that we've discussed previously.
Speaker Change: Our debt credit facility does provide the flexibility to increase our leverage up to four five times.
Speaker Change: We also intend to return capital to shareholders. In addition to continuing our dividends we've renewed our normal course issuer bid.
Speaker Change: As you may see in our filings we spent $11 million on share repurchases in 2024, we've completed an additional $6 3 million in Q1 this year.
Speaker Change: Over the next three years, we intend to allocate approximately 250 million towards share repurchases.
Speaker Change: Turning to our business outlook for fiscal 2025.
Speaker Change: Okay.
Speaker Change: We actively engage with our clients to understand their current assessment of markets and expected investment activity.
Speaker Change: Our clients and our altice experts expected gradual multi year recovery.
Speaker Change: Our outlook for the year anticipate steadily improving market conditions.
Speaker Change: The low end of our guidance assumes that transaction volumes modestly increase year over year versus full year decline of eight 6% in 2024.
Speaker Change: Notwithstanding unforeseen geopolitical events, which may trigger economic downturns we.
Speaker Change: We expect the second half of 2025 to be stronger than the first.
Speaker Change: Given the continuation of choppy macro markets and knowing the impacts of some restructuring activities. We are again, providing full year guidance with additional color on Q1.
While the selling a property tax was a headline event for us in 2024. We also made several moves across the business units to improve focus on profitability.
Speaker Change: And our appraisal business, we sold or closed several underperforming or unprofitable markets.
Speaker Change: Within analytics, we sold part of the finance active business that had recurring revenues, but was not focused on commercial real estate clients.
Speaker Change: That business required substantial R&D investments and would have dragged down margins and growth rates in analytics.
Speaker Change: From a go to market perspective in analytics, we continue to focus on high margin recurring business with clients.
Speaker Change: We are no longer actively pursuing onetime third party implementation services businesses.
Speaker Change: Although they can represent large bookings, they're not corridor strategy.
Speaker Change: Additionally, as we analyze LTV to CAC ratios long term value to customer acquisition costs.
Speaker Change: It is not profitable to chase noncore data clients, we are focused on equity and debt investors lenders and large service providers for clarity, we're not pursuing clients such as HVAC providers or others, who look to sell to property owners of course, we welcome their business, we're just not.
Speaker Change: So actively marketing or selling to those segments as they represent lower profitability and higher churn.
Speaker Change: Okay with that context.
Speaker Change: Analytics for the full year, we expect revenue growth in the 4% to 7% range, reflecting lower nonrecurring revenue performance as we're winding down some noncore services.
Speaker Change: We expect to sustain recurring revenue growth in the 6% to 9% range.
Overall, we expect stronger performance in the second half of the year, we have new products launching in early Q2, and we realized price increases upon renewals renewals are heavily skewed towards the second half.
Speaker Change: We will continue ramping margins and plan to deliver 250 to 350 basis points of adjusted EBITDA margin expansion.
Speaker Change: Regarding Q1, and considering the restructuring comments provided we expect revenue growth to be below the full year average in Q1, we.
Speaker Change: We expect total analytics revenue to be in the zero to 2% growth range recurring revenue growth to be between 2% to 3% and 50 to 150 basis points of margin expansion in Q1.
Speaker Change: With respect to our Q1 performance.
Speaker Change: <unk> software growth is expected to remain steady and above the average for the total recurring revenue for for analytics Vms will grow but at a lower rate in Q1.
Speaker Change: Clients have been disposing of lower performing assets as they optimize their portfolios and accumulate capital to redeploy to higher performing sectors. While this temporarily reduces asset counts and therefore, our vms growth rates, we see positive signs transactions are beginning or as clients would say.
Speaker Change: We may be nearing the point of price discovery. Additionally.
Speaker Change: Additionally, capital continued to flow into CRE in Q4, and redemption Qs are declining all positive signs.
Speaker Change: At appraisal and development advisory were focused on improving profitability, even though the results in lower revenue expectations.
Speaker Change: You'll see we've called out profitability improvements in absolute dollars even in Q1.
Speaker Change: With respect to our 2025 corporate costs, we expect that they will remain consistent with 2024 levels.
Speaker Change: Other than the FX benefit that we received in Q4.
Speaker Change: We have some costs related to the transition service agreement associated with the property tax sale that run through our corporate P&L for 2025, but will be eliminated before 2026.
Speaker Change: Tying it altogether at the consolidated level, we expect 3% to 5% single digit revenue growth and a 300 to 400 basis point improvement year over year.
On margins on the cost and expense side. Our plans are based on a single digit revenue growth scenario, if markets improve faster than expected.
Speaker Change: We will increase our pace of investment.
Speaker Change: Our medium term targets for fiscal 2026 as detailed in July of last year remain unchanged.
Speaker Change: We're confident in our ability to achieve double digit revenue growth and about 35% adjusted EBITDA margin in fiscal 2026 for the analytics segment.
Speaker Change: <unk> is well positioned to capitalize on a steadily improving market.
Over the next few years macroeconomic markets move in cycles, and we remain in a challenging one.
Speaker Change: As we've said on previous calls the cycle will inevitably shift in our favor, but we cannot exactly predict when but when it does we're ready to accelerate.
Speaker Change: We entered 2025 on strong footing supported by an improving industry backdrop compelling new product capabilities, the new pricing model that enhances client adoption and a team dedicated to helping our clients grow okay. Let's open up the line for questions now.
Speaker Change: Operator.
Speaker Change: Thank you we will now begin the question and answer session Essar Minder. If you are dialed in and would like to ask a question that is press star one followed by the number one on your telephone keypad. If you would like to withdraw your question with the breadth of our win again. If you are called upon to ask a question in our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on me.
Speaker Change: When asking your question.
Speaker Change: Our first question comes from the line of your late Yuri Lynk with Canaccord Genuity. Please go ahead.
Yuri Lynk: Hey, good evening everyone.
Speaker Change: Hey, great.
Speaker Change: Jim just a little more color on.
Speaker Change: Q1, I guess.
Speaker Change: I mean.
What how much of this do you think is.
Speaker Change: Kind of macro driven.
Speaker Change: Not necessarily CRE, but more tariffs and all the stuff we see out there.
Speaker Change: And how much of that is just a continuation of what we've what we've seen in the <unk>.
Speaker Change: Half of last year and in conjunction with that.
Speaker Change: Any kind of data points that give you confidence that you can pull out of this in the back half of the year.
Gary: Yes, Gary Okay.
Speaker Change: So couple of things they're.
Speaker Change: Public and I, both mentioned price discovery, and we're going to that point, because our clients are starting to move out lower performing assets, which before they werent because there werent buyers. So that's why we said we're we're see a positive sign even though it's temporarily lower assets for us we know what their plans are.
We know the sectors that they're looking to move into.
Speaker Change: And they are just trying to get to the lower performing assets out of their portfolios. So they're prepping for growth, which is good where they were.
Speaker Change: Stuck stagnant for the last couple of years.
Speaker Change: The tariff impact and the macro absolutely in play obviously it plays into price discovery because.
Speaker Change: The the.
Speaker Change: The related topic, there is cost of capital.
Speaker Change: So.
Speaker Change: Tariffs won't directly impact us, but it will certainly cause lack of predictability of cost of capital for our clients and our clients.
Speaker Change: They can they can adapt to a higher cost of capital what they don't like us and unpredictable cost of capital. So we have some of that going on and we've had a couple of clients say they delayed projects here or there based on that so it feels as we've said since 2010.
Speaker Change: 93.
Speaker Change: It doesn't feel wildly different to us the good news is the Q4 transactions. Although they were they were slightly down year over year, not our transactions the macro market transactions.
Speaker Change: They were down low single digit versus the eight 6% that I set for the full year. So.
Speaker Change: We're seeing that go in the right direction.
Speaker Change: Okay.
Speaker Change: Helpful.
Speaker Change: Second one for me just.
Speaker Change: You can kind of do the math on your or your full year international versus North American revenue growth for <unk>.
Speaker Change: For analytics.
Speaker Change: It looks like the international grew.
Speaker Change: Three times.
Speaker Change: That of North America about 9% for international.
Speaker Change: There might be some currency.
Speaker Change: But can you just how has the.
Speaker Change: International business.
Speaker Change: Yes.
Speaker Change: Is it just.
Speaker Change: 9% look theres a lot of white space there so.
Speaker Change: New clients or.
Speaker Change: Additions with existing clients on Vms any any color there would be helpful.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: We have improved our focus of executive sales in <unk>.
Speaker Change: International we have a head of international specifically right now.
Speaker Change: Which is which has helped.
Speaker Change: FX is absolutely comes into play here.
Speaker Change: And for Berry has been a really important driver whether it's for various sales themselves, which for the for Berry team keeps exceeding our expectations, we're reasonably happy with that acquisition.
Speaker Change: But our clients outside of North America are very happy to see us having acquired for Berry and are therefore more interested in the broader office solution, particularly as we make more and more progress connecting for Berry to the platform and they can see that now.
Speaker Change: Benchmarking the benchmarking products that we're releasing next quarter.
Speaker Change: We showed in Boston at our kickoff event.
Speaker Change: They know that they can participate in it without having to be heavy argus users. So all of those types of elements are playing in our favor.
Speaker Change: Okay.
Thanks, guys for taking my questions. Thank you Gary.
Speaker Change: Your next question comes from the line of Richard said with National Bank Financial. Please go ahead.
Richard: Yes. Thank you.
Sort of along the lines of <unk>.
Richard: There is question when it comes to the environment.
I would just say that there is a bit more flux now than there was when you reported Q3 results and I know you already mentioned like tariffs, but it just seems like.
Richard: There's a lot more extraneous factors, but when you speak to your clients do they feel the same way or is it pretty much the same sort of challenges that you saw back then.
Richard: Richard Thanks for the question.
Richard: It's a great question and if you look at the interest rate environment.
Richard: It definitely rates went higher.
Richard: Zinc post our last call.
But certainly in Q4, they went higher so there's been there was a cautious optimism in Q3.
Richard: Sure.
Richard: The numbers, we put up the recurring bookings number in Q4 was good for the second quarter in a row. So we're happy with that.
Richard: But I would say there is.
Richard: More and more muted than it was in prior quarters, and we try to track our for our public clients, who have been out on the calls.
Richard: Their overall market perspectives have come down from where they were.
Richard: But you can hear across the sector. There are green shoots where it's like the very high end.
Richard: CRE, there's been good growth in capital markets business for some of our clients.
Richard: But the broader market.
Richard: Trying to figure out what's going to happen with interest rates.
Richard: So.
Richard: <unk>.
Richard: It's not just the monetary policy of the various countries in play here, but then.
Richard: What will the fiscal policy impacts be.
Richard: Inflation and therefore.
Cost of capital Ford for clients.
Richard: Okay great.
Richard: Just sort of shifting gears here.
Richard: I'm wondering if maybe serve discuss Argus intelligence.
Richard: Kind of what the uptake or feedback spend and sort of how thats going to play out over the course of this year.
Richard: Okay.
Richard: August intelligence is going well R. R.
Richard: As clients have been renewing their renewing to Argus intelligence contracts.
Richard: Which has been great. So we are right on the plan that we expected for that slightly different mix of price versus volume than we expected, but just a hair in either direction. So.
Richard: In totality, we are right on.
Richard: And this puts us into an exciting next phase now because now it's about driving more and more adoption. This is where the customer success team that we stood up really comes into play. So first build the platform get the clients on the platform and then surround them with customer success teams that get to show them all.
Richard: The benefits of being on the platform and it's really nice to be in that phase now versus the while this is someday, we're going to build it and have it will know where theyre now it's about.
Richard: Putting a lot of love around the clients and making sure they understand the full benefits of it and they seem pretty excited about it.
Speaker Change: Okay, and just quickly on the Argus intelligence so.
Speaker Change: If we look out for exiting this year do you have a number that you can sort of share that you are targeting to have on the platform in terms of proportion of your base.
Speaker Change: The proxy for that is the contracted on cloud there they all come up depending on their own internal it.
Speaker Change: Hi.
Speaker Change: Priorities as to how much of their environment. They are turning on and they may turn on a country at a time, but the other part that that is really exciting for us and the clients seem to.
Speaker Change: It's been very positive feedback is on the asset based pricing because once you removing there are realizing that they can ramp up.
Speaker Change: Exponentially more people in their environment to take advantage of our solutions. So yes, they are paying more but theyre getting a disproportionate benefit of value because they can add folks.
Speaker Change: <unk>.
Speaker Change: They can add various solutions that as they are renewing.
Speaker Change: They're bundling up more and more of our products.
Speaker Change: Asking for it in that asset based pricing so that's exciting.
Speaker Change: Okay, great. Thank you.
Speaker Change: Your next question comes from the line of Stephen Macleod with BMO capital markets. Please go ahead.
Stephen Macleod: Thank you good evening guys.
Speaker Change: Yes.
Speaker Change: Thanks for the color just wanted to circle around on two things specifically just with respect to.
Speaker Change: The new bookings in the quarter.
Speaker Change: As it is the variation in growth rates that we're seeing really just around the lumpiness of that business. I mean, I think you had a couple of big contracts that were coming in and that were signed in Q3 and I'm. Just curious if you can give a little bit of color around.
Speaker Change: Sort of what what dynamics you saw in Q4.
Speaker Change: Yes, Steven.
Stephen Macleod: It's a fair question, it's a great question and.
Stephen Macleod: We talk about the bookings from a growth perspective, and when Youre talking about $20 million of recurring bookings for instance, it doesn't take much for distributing our growth rate.
Stephen Macleod: And in terms of just <unk>.
Stephen Macleod: <unk> small numbers and so for sure there are deals that happened in one quarter or a year later and harder to grow over.
Stephen Macleod: Which makes it compares better or worse and so that's why for US candidly, it's really about the consistency of the bookings versus getting focused on net on the specific growth rates and so long as we can drive that consistency in bookings.
Stephen Macleod: That's really the measure that we're looking for is.
Stephen Macleod: Did we have good we have good consistent bookings across software across Vms.
Stephen Macleod: And what's happening on data.
And then secondly, we're looking from a from a.
Stephen Macleod: Future forward perspective in regards to what is the pipeline is telling us in regards to.
Stephen Macleod: Where we're seeing the activity as well too and so yes to answer your question for sure. There are there are deals that happened in one year that a year later, it's a harder or an easier grow over much.
Stephen Macleod: Again, why are we not necessarily focus on on the percentages per se.
Stephen Macleod: Reference point, but it's really more about the consistency of it and then how our pipeline is building for future quarters.
Stephen Macleod: Hey, Steve Okay.
Stephen Macleod: That weekly.
Stephen Macleod: We had the unfair advantage of we have other metrics that I'm going to I'm going to reference.
Stephen Macleod: Because hopefully we're going to get them out in the market soon but when we look at our net revenue retention and our IRR growth for Argus.
Stephen Macleod: In December our new logo component of that.
Stephen Macleod: <unk> was very strong and our.
Stephen Macleod: Our upsell was really strong in that upsell is driven by this move to asset base pricing, which has helped tremendously.
Speaker Change: Okay. Yeah, no. That's helpful. I was actually going to ask you about.
Speaker Change: Those alternative metrics are new metrics, but I guess, you just gave us a little bit of a taste, which is great.
Speaker Change: And then.
Speaker Change: Secondly, moving away from analytics.
Speaker Change: But I think you mentioned or Jim perhaps the corporate costs.
Speaker Change: And the outlook for 2035, and I just wanted to make sure I heard correctly.
Speaker Change: Youre expecting corporate cost to be flat year over year.
Speaker Change: When you exclude the FX gain you saw in Q4 is that is that right yes.
Speaker Change: Yes, that's right Stephen again, we just didn't want.
Speaker Change: We did benefit from out from a one time FX gain and and.
Speaker Change: In Q4, and so that's not reflective of that.
Speaker Change: The run rate of the business and again.
Speaker Change: Yes, corporate cost is a big focus area for us you've heard Jim talk about it.
Speaker Change: Quite a bit in some of our previous calls in the last in the last two or three and obviously.
Speaker Change: With the divestiture of the property tax business.
Speaker Change: We're going to continue to focus on executing on our Tiger target.
Speaker Change: Operating model, which will help us to continue to focus on driving corporate cost out over time, but in terms of from a modeling perspective, I would just back out the one time in Q4 and use that as a reference point I would say the one other okay.
Speaker Change: As I look at the total consensus numbers that were out there.
Speaker Change: The the street, probably took the TSA related costs right and.
Speaker Change: Ticket thought about it as discontinued ops, because we said no stranded costs were no stranded costs coming out of 2025 post the transition service agreement. So there are several million dollars that remains on our corporate P&L and twenty-five.
Speaker Change: Associated with the TSA or the sale of tax.
Speaker Change: That will be out of it will be off the P&L by the end of 'twenty five but there are several million dollars there.
Speaker Change: That I don't think it is accounted for.
Speaker Change: Okay that was going to my next question was just just on that so I guess as we look to 2026 and begin to think about that with respect to your overall longer term guidance. That's reflective there with a couple of few million dollars off the P&L for corporate costs.
Speaker Change: Yeah, absolutely in absolute dollars corporate costs come down quite nicely in 2026.
Speaker Change: Okay, Okay, well, that's that's great color. Thanks, guys appreciate it.
Speaker Change: Okay, Alright, thanks, Steve.
Speaker Change: Your next question comes from the line of Gavin Fairweather with core Mark Securities. Please go ahead.
Gavin Fairweather: Oh, Hey, good afternoon, maybe just to start on Vms just to be clear I think the script said that BMS contributed to growth this quarter, but youre also.
Speaker Change: Talking to.
Speaker Change: Asset sales dynamic. So is this just kind of a little bit lower growth than you would've expected and it can.
Speaker Change: Maybe just help us square that.
Speaker Change: Yes, Kevin.
Speaker Change: Yes, sorry, if we weren't clear on that Vms and Rguest both outgrew.
Speaker Change: The entire so when you take the entire analytics recurring revenue.
Speaker Change: <unk> and Rguest, both grew faster than that total number that full year I think it was $6 four numbers. So they are both growing faster than that.
Speaker Change: In Q1 Rguest.
Speaker Change: We'll do quite well again.
Speaker Change: <unk> will grow in Q1, but the growth rate drops off because of this rebalancing our clients have gone on in their portfolios.
Speaker Change: It's a temporary situation as they rebalance.
Speaker Change: Okay, so not growth not a decline still growth, but not at the same rate that we've been got it that's very helpful. And then maybe just.
Speaker Change: Can you discuss in a little bit more detailed the decision to move away from some of these noncore business lines and analytics.
Speaker Change: Maybe you can also just help us understand the quantum of revenue that perhaps it was tied to those noncore business lines. I know you said that you expect core too significantly.
Speaker Change: Outpaced the growth rate of this noncore and twenty-five maybe any further detail there would be helpful.
Speaker Change: Yes.
Speaker Change: And the piece parts of there are a bunch of small moves that we did but together on a full year basis, it's millions of dollars of revenue year over year.
Speaker Change: It's.
In the quarter in Q1.
Speaker Change: It's north of $1 million when you take all of the pieces together.
Speaker Change: Okay understood and then maybe for Pavan.
Speaker Change: Obviously, we got your EBITDA guidance for 25, which was super helpful. But maybe you can help us understand kind of the costs below EBITDA kind of post tax moving out of the system in terms of kind of taxes leases Capex I know that you put out a free cash flow conversion target but.
Speaker Change: Some detail there would be helpful.
Speaker Change: Yes, but again, we continue to be very razor focused on making sure that we can continue to drive the efficiencies across the business to be able to drive our free cash flow.
Speaker Change: Version.
Speaker Change: And 60.
Speaker Change: 65% to 70% target that we've put out there in terms of 2026, when you compare 2025 to 2024.
Speaker Change: Being a pretty.
Speaker Change: Pretty large improvement from a year over year perspective.
Speaker Change: Part and parcel of all of the all of the investments that we've made in our ERP systems and driving the kind of a single source of truth for us, which gives us a lot of opportunity to be able to drive efficiencies in our workflow and processes.
Speaker Change: I would say below the line.
Speaker Change: You did see some restructuring charges. This year, we're going to continue to have restructuring charges as we go into next year as we start right sizing the business.
Speaker Change: Staff property tax divestiture, obviously, we're going to remain committed to supporting the TSA requirements that we have.
Speaker Change: Sure.
Speaker Change: The sale, but.
Speaker Change: Again, we continue to organize the business around a very prescriptive target operating model, which is going to be a multiyear journey in terms of.
Speaker Change: How we are addressing the size and scope of.
Speaker Change: Of the support functions around the business.
Yes.
Speaker Change: There will be some some tax payment charges associated with the proceeds that we got from from from property tax, which youll see flowing through.
Speaker Change: Our cash flow numbers at next year I guess.
Speaker Change: 2025, this calendar year.
Speaker Change: So from a from a reported perspective, there will be some nuances in the free cash flow as you.
Speaker Change: As you look at the tax line specifically.
Speaker Change: And again.
That's something that.
Speaker Change: Something that we've incorporated in just part of <unk>.
Speaker Change: So you have to pay the taxes, but other than other than the tax line and then again continuing on restructuring focus and our focus on making sure that we can drive strong free cash flow conversion that should give.
Speaker Change: Pretty good baseline for us as you think about 2025.
Speaker Change: I appreciate that thanks, so much.
Speaker Change: Your next question comes from the line of Paul Treiber with RBC capital markets. Please go ahead.
Paul Treiber: Oh, thanks, so much and good afternoon.
Paul Treiber: You called out soft data solutions is that related.
Paul Treiber: Entirely to the move away from non core or is there. Other some was there some other softness in the market that you saw.
Paul Treiber: Yes, Paul.
Paul Treiber: A lot of it is because we're just not we're not chasing that noncore really SMB clients.
Paul Treiber: But there is also there is pricing pressure.
Paul Treiber: Other players who.
Paul Treiber: Bundle global pricing together moves like that so we're addressing that so I can't say, it's all in the go to market activity, but it's it's theirs.
Paul Treiber: There is a profit play for us and not chasing that part of the market, but there's also a pricing pressure play.
Paul Treiber: The competitors who've going after those markets that pricing pressure they are really going for those SMB.
Paul Treiber: Other type clients.
Paul Treiber: Some of the core clients.
Paul Treiber: We'll come back to us and ask for pricing.
Paul Treiber: Dispensation to match that but.
Paul Treiber: Yes, the competitors are really going for those others.
Paul Treiber: Other.
Paul Treiber: Vendors that are not.
Paul Treiber: Service providers equity investors debt investors are lenders.
Paul Treiber: Okay. That's helpful to understand.
Paul Treiber: When you look at the guided growth for analytics and 25 Youre comments on Q1 and that the relative growth of Dms versus August were helpful. How do you see it progressing through the year is is that the backend.
Paul Treiber: Strength is that driven equally by both segments do you see.
Paul Treiber: One.
Speaker Change: More consistent our rguest more consistent in the rebound predominantly being driven by by BMS.
Paul Treiber: Yes.
Paul Treiber: Maybe I'll take I'll take it and Jim you can add in some color shelf again, when you think about it.
Paul Treiber: Kind of break it down between Argus in Vms.
Paul Treiber: Argos has been growing at a very high.
Paul Treiber: The healthy steady clip, obviously a lot of our new offers are manifesting its way through through the Argus enterprise in Argus intelligence elements of it.
Paul Treiber: But do keep in mind that there are a lot of what we're doing from a from a price to value perspective is anchored on renewal dates or there is just naturally more renewals in the second half than there are in the first half which will launch on charter when you. When we talked about are our growth algorithm and Rick.
Paul Treiber: Cards to our growing part of it is coming from new logo part of it is coming from expansion of existing clients and the other part is coming from price.
Paul Treiber: See heavier renewals in the back absent and so even though there is strong growth throughout the year.
Paul Treiber: More slanted towards the back half from an <unk> perspective.
Paul Treiber: Jim mentioned that what's going on from a Dms standpoint, we are seeing a lot of portfolio rebalancing.
Paul Treiber: Activity that happened in Q4 and will continue into Q1, which is why we were being a little bit more prescriptive in regards to how to think about Q1 as it relates to Vms, but again, they're also.
Paul Treiber: Making sure that they have capital available to redeploy into more profitable sectors and so as that rebalancing activity works. Its way through you are also seeing or we're expecting to see a better recovery on Dms.
Paul Treiber: And in the second half versus first half again growth all throughout that throughout the year, but stronger growth in the back half as our as our clients put themselves in position enabled <unk> to start redeploying that capital into different sectors.
Speaker Change: Alright, So said differently rguest grows faster in the first half.
Paul Treiber: Steady good growth.
Paul Treiber: BMS.
Paul Treiber: As more.
Paul Treiber: <unk>.
Paul Treiber: Impacted by unstable markets.
Paul Treiber: Continuing to grow, but how aggressive our clients get and deploying assets is a function of cost of capital.
Scott: Your next question comes from the line of Scott <unk> with CIBC. Please go ahead.
Speaker Change: Hi, good evening.
I just wanted to ask a little bit more on margins. Obviously, you had great margin expansion 24, you're guiding again to sort of further expansion 25, but if we stack that into 26. It implies that the margins are going to continue to expand that at an even faster rate to 26. So I was just wondering if you could sort of give some more color on what.
Speaker Change: On some of the drivers into 26 is that all gets you to keep expanding those margins even faster.
Speaker Change: Three main things Scott.
Speaker Change: One <unk>.
Speaker Change: Better internal adopt for increased internal adoption of our own technology, which is a major initiative for us this year getting our own teams on the platform. So back to data is at the heart of driving advanced analytics, that's for our own teams consumption as well as for our clients. So when we solve it for our teams or solving for the <unk>.
Speaker Change: Clients, we solve the problem once we get benefit in two places. So that's number one number two is better leverage and increased leverage of our global service Center, which we continue to expand.
Speaker Change: <unk>.
Speaker Change: The third driver outside of volumes is the increased pricing of our of going to the asset based pricing again, because we get a nice price lift, but theres a bit of sleeves from our vest as we allow our client we don't constrain our clients as the number of use.
Speaker Change: <unk> our variable cost per user is nominal so we want as many users on the platform consuming as many of our products and services as possible.
Speaker Change: The clients are really getting that with the asset based pricing, which is why we saw good bookings why we see steady progress in August and then the last piece as well.
Speaker Change: We're listening to our clients.
Speaker Change: And <unk>.
Speaker Change: Everyone's, saying steady growth in 2025.
Speaker Change: Much much more impressive pickup in 'twenty, six and that volume growth just gives us better fixed cost coverage.
Speaker Change: While we are reducing corporate overhead. So it's just it's a it's a good mix of our variables. We're not dependent on one we have several levers that are all driving margin expansion.
Speaker Change: So even before we were giving guidance youll remember, we kept saying the way we think about capital allocation as we start with 300 bps of margin expansion and how we fund the P&L and analytics Covenant and I are staying with our playbook there and we think we have we think we have plenty of running room to get to our 26.
Speaker Change: Numbers.
Speaker Change: Okay, Great. That's that's a lot of that book.
Speaker Change: I just wanted to ask on capital allocation given you now have the proceeds from the property tax sale.
Speaker Change: Obviously, you talked about the buyback being $250 million, but.
Speaker Change: How should we think about M&A are you thinking like potentially that the balance of that could be on a larger deal or are you looking more at sort of multiple smaller deals. Just curious how you think about sizing of M&A as you look at it.
Speaker Change: Alright.
Speaker Change: It's an interesting market to be a buyer because we've been so selective over the last couple of years, we didn't get mired down with.
Speaker Change: <unk> of underperforming.
Speaker Change: Investments, our investments were tech and data oriented in the past.
Speaker Change: That is what Jeff that's what allowed us to get to the launch of the platform.
Our performance managed our portfolio manager product are soon coming out benchmark manager product. Those we couldnt have done those without the strategy <unk> acquisition, which gave US machine learning models, we couldnt have done it without the <unk> acquisition, which gave us the AI, which does the identity or address resolution, which allows us to have the altice.
Speaker Change: And Thats, how we tie all the data and analytics together. So we focused on integrating those in the meantime, there were a lot of there was a lot of sizzle out in the market on companies that didn't necessarily have great cash flow plans or roads to profitability and in.
Speaker Change: The CRE environment, it's been difficult for them. So there is some good technology out there that is way more affordable than it would have been a few years ago that we're looking at nothing imminent right now, but it's we're in a good place to take it to take a full view of whats.
Speaker Change: Available there are things from small tech tuck ins too.
Speaker Change: <unk>.
Medium sized businesses that have great profitability and growth profiles on it.
Speaker Change: We are engaged in several but of course, we are balancing that with just our organic cash flow generation, because we want to we want to make sure. We're returning capital to shareholders at the same time.
Speaker Change: Alright, thank you.
Speaker Change: Your next question comes from the line of Kevin Christian or update you made Scotiabank. Please go ahead.
Kevin Christian: Hey, there good evening just a question again on the Q1 guide for recurring revenue, 2% to 3% you talked about youre going to see growth in Vms and an rguest offset on the noncore and data solutions, but you also I think youre also benefiting from from FX, which you did in the current quarter so like what.
Speaker Change: Are your expectations for sort of constant currency growth on on Vms and <unk> and software.
Speaker Change: Hey, Kevin all of the all of the growth rates, we've talked about are always at constant currency.
Speaker Change: So even though we get reported as reported you'll see everything there is transparency. So all of the commentary that pub and an idea of when we say.
Speaker Change: Continued growth rate from Vms, obviously, that's a very heavy U S business, so on an as reported basis.
Speaker Change: Got an extra kick from that but we're talking constant currency and we're growing at constant currency.
Speaker Change: Okay got it thanks for that.
Speaker Change: So I don't want that to Mike.
Speaker Change: Alright can you hear me.
Speaker Change: Yes Hello.
Yes, sorry second question I had for me on your on your annual guide, 6% to 9% recurring I think I'll, let you talk a little low and that that is a modest increase in transaction volumes, but remind us on the high end what does that imply and is there any differences in the 6% to nine anything related to software assumptions faster growth.
Speaker Change: Faster uptake of <unk>.
Speaker Change: Some of the newer modules that are coming out just maybe just remind us again what is.
Speaker Change: In the 6% what assumptions are in the 9%.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Fair question again.
Speaker Change: <unk> modeled as we modeled.
Speaker Change: 2025.
Speaker Change: There are a lot of different anchor points that you can look at in regards to how you think about it in.
Speaker Change: And again a lot of it all kind of boils back to what are you seeing from a transaction volume percentage.
Speaker Change: As we mentioned to you.
Speaker Change: Like our growth algorithm next year is 20% new logo, 40% existing client 40% pricing.
Speaker Change: <unk>.
Speaker Change: And if we're just assuming some level of like we've been in a decline in transactions for a couple of years now and so we've taken a conservative view a modest improvement in transaction activities with <unk>.
Speaker Change: The low end of our guidance range, obviously, if we do happen to see.
Speaker Change: 10 year, treasury, stabilizing or coming down and faster movement in the market. When you think about our growth algorithm now and will be greater or less that's coming from the existing client expansion and from new logos as well, which would help us.
Speaker Change: To get to the higher end of the range and the acceleration potentially above that but.
Speaker Change: And again our.
Speaker Change: Guide really took into consideration of the fact that one we've been in a decline for a couple of years, but two we are seeing green shoots.
Speaker Change: Sequential transaction activity improving.
Speaker Change: So we're hearing better soft demand from our clients in regards to the deployment of capital in them.
Speaker Change: And so that's how we thought about that 6% to 9% it was.
Speaker Change: Assuming a modest improvement in year over year growth number and transaction activities should change hopefully get us to.
So the bottom end of the range.
There are a lot of variables right. So yes.
Speaker Change: Yes.
Speaker Change: Great. That's it for me thank you.
Speaker Change: Once again as a reminder to everyone who has dialed in and would like to ask a question that is depressed star one followed by the number one on your telephone keypad.
Speaker Change: It seems that we have no further questions I would now like to turn the call back over to Jim Henry for closing remarks, alright, as always thanks, everybody for listening and for the great questions.
Speaker Change: Yes.
Speaker Change: It's a tough macro everyone's watching.
Speaker Change: Lots of volatility and how various governments are going about various things right now so.
Speaker Change: That said not.
Speaker Change: Wildly different than the last couple of years. So we remind everyone that we did six 4% recurring revenue growth while transactions were declining while we were moving away from non core so I hope that frames out the six to nine a little bit more.
Speaker Change: The number of renewals we have in the back half of the year I would remind everyone is.
Speaker Change: Disproportionately heavy to the second half and that gives us that's where we get the asset based pricing thats, where we get the lift so.
Speaker Change: It's going to be a very different profile in the first couple of quarters and the second couple of quarters, but the macro could come into play we always have to keep an eye on it and we've we've been putting that caveat out from the from the minute. We gave guidance at the beginning of last year, we try to track to what our clients are saying and I think we are in line.
With what the market in general is saying about.
Speaker Change: Growth prospects in 'twenty, five and we feel good about 'twenty six so thanks, everybody for your time and I will look forward to the ongoing questions.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
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Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
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