Altus Group Ltd

TSX:AIF

Earnings Call Analysis

Altus Group Q2 2024 Financial Results and Strategic Updates

In Q2 2024, Altus Group made significant strides towards its strategic goals despite facing challenging economic conditions. Advisory profits were down to $2.3 million primarily due to higher employee compensation and restructuring costs. However, free cash flow saw an impressive rise of 96.4% year-over-year. The Analytics segment continued to show robust growth, with a double-digit improvement in adjusted EBITDA driven by increased revenues from cloud subscriptions and new sales. Recurring revenues grew by 5.5%, now making up 93% of Analytics revenues. The company also announced the planned divestiture of its Property Tax business, aiming to simplify operations and allocate capital toward higher-value growth opportunities in Analytics.

Navigating Through Market Challenges

In the second quarter results for Altus Group, there was a clear sense of ongoing market evolution. The company reported flat performance within its Advisory segment with a profit decline to $2.3 million year-over-year, primarily due to increased employee compensation and acquisition costs. However, it showed strong resilience, particularly with free cash flow increasing by 96.4% compared to last year, suggesting effective cash management during challenging times.

Sustained Growth in Analytics

Notably, the Analytics segment continued to demonstrate growth, supported by a smooth transition to cloud subscriptions and the positive impacts of new asset additions. Recurring revenues in this sector now encompass an impressive 93% of analytics revenues, up from 89% the previous year, indicating a robust, low-churn revenue model. The segment recorded a 5.5% growth overall, with 4% organic growth attributed largely to efficient operational scaling and successful acquisitions. As the company executes its cloud strategy, expectations for higher recurring revenue in the future remain intact.

Focus on Margin Improvement

Margin expansion has been a pivotal goal for the company, with adjusted EBITDA margins improving by 210 basis points. Altus Group aims for an annualized margin improvement of 400-500 basis points in 2024, driven by restructuring efforts and efficiencies gained through its service center in India. These enhancements position the company favorably for future growth, reinforcing investor confidence in sustainable profit margins.

Impacts of Divestitures and Future Guidance

The recent divestiture of the Property Tax segment, which will be classified as discontinued operations going forward, is a strategic move aimed at focusing on higher growth potential sectors. As a result, Altus has revised its guidance for analytics recurring revenue growth to a range of 6% to 9%, down from an earlier forecast of 8% on the lower end. The company remains cautious yet optimistic, outlining a strategy that aligns with the macroeconomic landscape while anticipating gradual recovery in the commercial real estate market in 2025.

Financial Position and Strategic Outlook

Ending the quarter with a solid cash position of $49.5 million and a bank debt of $306.4 million, Altus maintains a funded debt-to-EBITDA leverage ratio at a manageable 2.11x. This strong liquidity of $293.1 million along with a forecasted net cash position post-property tax sale presents ample opportunity for future investments, share buybacks, and strategic acquisitions. Moreover, Altus expects double-digit revenue growth along with a target of approximately 35% adjusted EBITDA margin by fiscal 2026, highlighting the company's long-term growth aspirations and operational agility in adapting to market dynamics.

Strength in Innovation and Client Focus

Innovation remains at the forefront of Altus's strategies, especially with the recent developments in the Altus Enterprise platform designed to elevate client engagement through advanced analytics and assets performance management. As the company prepares to unveil new products and updates to existing platforms, it aims to enhance user experience and driving efficiencies that translate into higher client satisfaction and, subsequently, revenue growth. The market's response has been positive, reflecting on the effectiveness of client feedback loops in shaping product development.

Earnings Call Transcript 2024-Q2

[Operator]

[Indiscernible] results conference call and webcast. Please note that today's call is being recorded. [Operator Instructions]. I will now turn the call over to Camilla Bartosiewicz. You may begin your conference.

[Camilla Bartosiewicz, executive]

Thank you, Brianna. Good afternoon, everyone, and welcome to the conference call and webcast discussing Altus Group's second quarter results for the period ended June 30, 2024. Our disclosure materials, notably the press release and D&A, financial statements and the slides accompanying our prepared remarks are available on our website and as required, have been filed to SEDAR+ aftermarket close this afternoon.



I'm joined today by our CEO, Jim Hannon; and our CFO, Pawan Chhabra. Some of our remarks on this call and in our disclosure may contain forward-looking information that is based on certain assumptions, and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our forward-looking information disclaimer in today's materials.



Please be reminded that Altus Group uses certain non-GAAP financial measures, ratios, total segment measures, capital management measures and supplementary and other financial measures as defined in National Instruments 52-112. We believe that these measures may assist investors in assessing an investment in our shares as they provide additional insight into our performance. We use or caution that they are not defined performance measures and do not have any standardized meaning under IFRS for us and may differ from similar computations as reported by other entities, and accordingly, may not be comparable to financial measures as reported by those entities. These measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with IFRS. An explanation of these measures is defined in today's IR materials.



I would also like to point out that unless otherwise specified, our percentage and basis point growth rates we refer to on today's call will be on a constant currency basis over the same period in 2023.

[Pawan Chhabra, executive]

[Audio Gap] Take overnight steady progress against our 2024 goals and to strategically position Altus to maximize opportunities as market conditions improve.



Our Q2 results were flat in Advisory. Profit was $2.3 million, down year-over-year, which on a comparative year, which primarily impacted by higher employee compensation costs, acquisition and related costs due to revs, our planned restructuring activities and changes in our financing costs. Adjusted EBITDA was down 19.2% due primarily to lower earnings at property tax. And free cash flow by was up 96.4% on an as-reported basis over last year, which, as you might recall, included the impact of our ERP transition.



If we were to compare to Q2 of 2022, which may be a more appropriate benchmark, free cash flow was up 45.6%. Additionally, I would like to highlight that in Q2, we recorded $2.6 million in restructuring costs business segments as well as our corporate functions. This reflects our ongoing efforts to operate more efficiently and rebalance investments towards future growth initiatives.



Now turning to our business segment performance. Analytics continues to grow, putting up both top line growth and margin expansion. Revenue growth was driven by our ongoing transition in cloud subscriptions, new sales, a higher number of assets on our valuation management solutions platform and contribution from the Forberry acquisition. The double-digit improvement in adjusted EBITDA reflects higher revenues, operating efficiencies and our ongoing cost optimization efforts.



Recurring revenue now represents 93% of our analytics revenues in the quarter. This is compared to 89% in the prior year. These revenues are comprised of solutions that are embedded in our customers' most critical processes, and therefore, represent resilient revenue streams with low churn.



Recurring revenue grew at 5.5% or 4% organically. Marcus and DMS performance let softness in data solutions related to lower transaction volumes year-over-year. Because the macro economic conditions improve, we expect recurring revenue growth to plan. Nonetheless, as we've demonstrated over the past several quarters, recurring revenue continues to grow even on lower bookings space. You'll hear more from Jim on that in a bit.



Our margins continue to expand, up by 210 basis points in the quarter and in line with our expectations. We continue to expect a more meaningful ramp in the second half. We remain committed to our plan to achieve 400 to 500 basis points of annualized margin improvement this year of our global service center in India and the full year benefit of our restructuring activities.



Turning to property tax. Given our recent announcement about the divestiture of this business, we intend to meet future results into discontinued operations next quarter, at which point we will no longer review the segment's performance.



Property tax in Q2 was flat and adjusted EBITDA was down 34%. As you may recall, the strength in Q1 reflected some Q2 opportunities getting pulled forward, notably in the U.S. Canada in the quarter was up. And in the U.K., although we had $8.3 million of contribution from annuity billings, our performance is impacted by both a mix of lower-value settlements and ongoing throughput constraints at the valuation office agency. The decrease in adjusted EBITDA reflects higher compensation expenditures as well as geographic variances of our revenue and related cost base on a year-over-year view.



And finally, appraisals and development advisory revenue and adjusted EBITDA were down. Similar to what we saw last quarter, the performance reflects muted market activity in the current economic environment as the business segment has some exposure to reduce transaction volumes and higher interest rates, resulting in fewer appraisals and fewer new project starts.



Now turning to our balance sheet. We finished the quarter with a cash position of $49.5 million and $306.4 million in bank debt. The funded debt-to-EBITDA leverage ratio is defined in our credit agreement was 2.11x, applying all of our cash to net debt to adjusted EBITDA leverage ratio was 1.97x. Our current total liquidity stands at $293.1 million. Additionally, the plans or financial flexibility with an estimated $600 million in net proceeds. It will enable us to invest organically via acquisitions and analytics, return capital to shareholders and pay down debt to target levels.



Pat, I'll turn it over to Jim.

[Jim Hannon, executive]

All right. Thanks, Pawan. I want to begin by expressing my gratitude to my colleagues for a highly productive first half of the year. It's been a busy period with significant progress on our strategic initiatives, which will drive the long-term growth of Office. We've remained focused margin expansion and significantly improved free cash flow in comparison to last year, and as Pawan said, in comparison to Q2 '22. We ramped our global service center in India, which is transient or addressable market and improved internal operations. I'll discuss this more in a moment.



We pursued the divestiture of the property tax business in Q2, which we announced in July. This divestiture simplifies the operating model for Office group and maximizes capital to invest in higher value growth opportunities at analytics. We continue restructuring actions and realigning our investments across the P&L towards our target operating model. And we've been readying our sales organization for a market uptick. We recently named Dan Hurley, a seasoned tech executive from SAP and as our new Chief Revenue Officer.



Turning to our cloud adoption operating metric we can users contracted on the cloud. With this space, we now have approximately 14 million valuation models in our cloud environment, representing over 1 million unique properties modeled on to enhance the value we grant our clients.



Expanding on my earlier comments regarding innovation, as of April this year, Atlus Enterprise has been connected to the Office performance platform. Our data scientists can now tap into the asset level data with tenant incentives and occupancy. This is an incredibly valuable benchmarking data for investors. We have unique asset knowledge at this scale.



Our investments in the office performance platform with the foundational technologies and talent from our Riona and Stratagem analytics acquisitions enabled us to accelerate the development of the platform.



Turning to new bookings. This metric captures incremental new business growth. Our new bookings performance continues to be impacted by the current macroeconomic for the last 4 quarters. DMS bookings are down year-over-year as our clients have an extensive backlog of undeployed capital. Working down that backlog over the next several quarters drives revenue growth without necessarily the need for additional bookings, but we are getting additional bookings.



We're updating our guidance for fiscal 2024. As we stated in February, we're listening closely to our clients and their expectations regarding cost of capital and willingness to invest at current price levels. With the U.S. Fed holding off on interest rate cuts for longer, CRE market activity has not resumed at the levels anticipated at the outset of the year. Lower interest rates and improving credit conditions will be catalysts for increased market activity, alleviating financing challenges and stabilizing given that these cuts are coming later in the year, we've moderated our revenue range.



Based on findings from our recent CRE industry conditions and sentiment survey, transaction appetite has been high asset values just to what they perceive as fairly or attractively priced. As we look at the data, Q2 transaction volumes were still subdued. Based on all this rheonomy data on a dollar volume basis, U.S. transactions were down 9.4% year-over-year, though up 13.9% over the first quarter.



On a total account ending in the right direction. Throughout Q2, our claims model increasing in cap rates, though interestingly, as we analyze the trends in August, the velocity of the increase in cap rates dropped dramatically, again, trending in the right direction.



While the data points suggest we may be closing in on price discovery, the market hasn't yet turned. Again, we remain cautiously optimistic about our stronger selling environment in the second half of 2024 and into 2025.



Our new business outlook is as follows: Analytics recurring revenue range has been refined to 6% to 9% growth. The low end of the range was previously 8%. While we still expect modest market improvements in Q3 and stronger improvements in Q4, we now anticipate those improvements to come in lighter than originally anticipated. We're maintaining our guidance of 400 to 500 basis points of annualized adjusted EBITDA margin improvement based on slowing the pace of internal spending and as a result of continued restructuring. We have various levers to execute on our margin plans.



Given the lower year-to-date performance and appraisals and development advisory, we're updating our outlook for modest revenue growth to a modest decline, we expect our earnings to improve in the single digits. Tying it all together, as property tax. Our consolidated outlook continues to reflect single-digit revenue growth, double-digit adjusted EBITDA growth and year-over-year margin improvement. Underpinning our consolidated adjusted EBITDA guidance, we remain confident in our ability and analytics to achieve double-digit revenue growth and about 35% adjusted EBITDA margin in fiscal 2026. That will be the first full year after the divestiture of the tax business.



We have strong backlog of VMS opportunities that we expect we'll convert to revenue when our clients come out of price discovery and deploy capital. We have new capabilities launching this year in additional technology and accelerated growth. And we believe that an inevitable market recovery will also coincide with heightened demand for advanced analytics capabilities and data-driven insights to help our clients maximize opportunities and enhance performance. The operating and technology enhancements we've been implementing leave us strongly positioned in the future.



In summary, Q2 the announcement of the proposed sale of property tax demonstrates our commitment to simplifying the operations of the business and focusing our attention and our capital on the highest growth opportunities for our shareholders. Our development teams and data science groups have delivered innovation and the shape of improved Altus interfaces and capabilities. We're seeing the power of Altus Cloud in the shape of new insights, better data management for clients, leading to faster, smarter decisions.



Our advisers and industry experts across all of our business lines remain committed to delivering exceptional service to our clients. And as we've demonstrated for multiple years, we're constantly improving our operations.



In the first half of this year, growth, all while improving analytics EBITDA dollars by 12% and expanding margins 210 bps in the first half. Of course, our transaction-related businesses of appraisals, development advisory and parts of our analytics data business reflect a lower -- reflect the industry and a lower value of transactions. That said, CRE volumes appear poised to return, and we expect that we will drive substantial growth across all of our business areas.



While our team would prefer to be operating in a more robust CRE environment, we remain bullish on the opportunities at Office Group over the next several years. All right, let's open it up to questions.

[Operator]

[Operator Instructions]. Our first question comes from the line of Daniel Chan with TD Cowen.

[Daniel Chan, analyst]

[Audio Gap] Yes. Low end of the initial guidance range was built by taking the Q4 '23 growth rate and then extending that throughout the year, the new bookings didn't really need to accelerate. So it seems sufficiently conservative, change that conservative outlook? And how are you building up the new guidance range?

[Jim Hannon, executive]

Yes, Dan, great question. So the -- 2 things here. One, we are taking our guide from our clients. So as our clients have been out and getting more muted outlooks, we felt, as I said, prudent to to take that down. I will tell you that our field, our business units are still calling -- taking that down as well when interest rates come down and what's the lag time between those coming down and the deployment of capital. So that's a key driver there. And then our teams are maintaining higher, but that's how we got there.

[Daniel Chan, analyst]

Okay. That's helpful. Despite the challenging macro, you're still booking about $20 million of new business. What is the biggest source of those new bookings? I know you called out ARGUS Software continues to stay consistent. So is it for new software? Is it new seats? Or companies adding anything to their contracts.

[Jim Hannon, executive]

At the smaller end of the market, there's not a lot of large funds launching for the moment. There's some -- it's a cross suffer. As we said, DMS is down. So it's across the rest of the lines. We'd like that growth rate to be higher. But as you said, we're putting up recurring bookings numbers that allow us to maintain our model and our long-term model and the onetime bookings have picked up. But again, we were -- we prefer stronger recurring, but at a level where we can make our guidance.

[Operator]

Our next question comes from the line of Stephen MacLeod with BMO Capital Markets.

[Stephen MacLeod, analyst]

Thank you. Just I know you sort of reiterated or not sort of you reiterated the 2026 guidance about 2025 analytics growth being in the mid-teens. Is that still a target that is valid? Or does that change with the expectation for more muted transaction activity?

[Jim Hannon, executive]

Yes, Steve. So there's a couple of things that we think drive double digit. So when we gave that guidance in July, obviously, we knew what our print was on Q2, we were still finalizing numbers at that time, so we weren't ready to pre-report anything. But we had a view as to how the quarter was shaping up.



That -- knowing that bookings that we were going to take a more muted view towards our recurring revenue growth this year, that revenue doesn't go away. This is a matter of when, not if it's coming to us. And so that actually pushes out into 2025 and 2026 and gives us tailwinds into both of those years.



So while we knew we were going to pull down '24, it's just new products that we have in the hands of claims right now. We have our Office Connect event in September, where we're going to broadly announce new products. We have a robust pipeline of new products that are coming out, and we have some price actions that are kicking in this year and then with new product launches as well. So pricing coming back organic volumes, just industry volumes coming back. And where we said probably said, VMS and ARGUS revenues were strong volumes come down. Those revenue streams don't come down. It just impedes our growth rate when we're in a tough interest rate environment. So some spillover from this year into '25 and '26 pricing new products. And then the integration implementation of Forbery into broader markets will also drive growth for us.

[Stephen MacLeod, analyst]

Okay. That's helpful, Jim. Just thinking about the appraisals and Development Advisory business. As you think about this year calling for single-digit adjusted EBITDA growth, just curious, having sold the tax business, can you talk a little bit about the strategic sort of benefits of continuing to own the appraisals in Development Advisory business?

[Jim Hannon, executive]

Sure. The debt advisory business -- so Steve, as you know, one of the key -- the core elements of our platform is the Altus ID. Being in the dev advisory business, we're seeing assets before their assets. So we're getting visibility into the business cases that are -- that's underpinning the underwriting. And we're in the full life cycle with those developer clients. So we're establishing Altus ID early on in that asset's life.



On the appraisals business for our largest Canadian clients, they depend on Altus there. That business spins off a tremendous amount of data that we can use in the analytics business. So even though transactions are down, and so the debt advisory, we said transactions, the interest rate environment is more impactful on the debt advisory versus transactions. But the transaction environment is what drives the that we provide to our largest Canadian clients, and we will continue to do so where we can drive data that informs the advanced analytics that we're bringing to them.

[Stephen MacLeod, analyst]

Right. Okay. That makes sense. That's what I was expecting. And then maybe just finally, with respect to the cloud transition, do you still expect an incremental -- I think it was sort of in the 10 percentage point range through the end of 2024 to the sort of mid-80s, yes, mid-80% range?

[Pawan Chhabra, executive]

Yes. We have several large clients that will move the needle [indiscernible] Q3 and Q4. So to get us into the mid-innings range. And then as we've mentioned through there, we'll see smaller[indiscernible] but essentially, at that point, we would consider ourselves pretty much fully transitioned over to the cloud.

[Jim Hannon, executive]

Point and will be sunsetting the on-prem products.

[Pawan Chhabra, executive]

That's right.

[Stephen MacLeod, analyst]

Right. Okay.

[Pawan Chhabra, executive]

Have we answered your question?

[Jim Hannon, executive]

Yes. Thanks.

[Operator]

Our next question comes from the line of Paul Treiber with RBC Capital Markets.

[Paul Treiber, analyst]

You mentioned that you have a number of levers to drive your margin expansion targets this year for analytics. You mentioned restructuring is one of those. Could you elaborate on just where are areas that you are able to plot some costs?

[Pawan Chhabra, executive]

Yes. So when you think about the drivers of the analytics margin Jim and I talk about multiple paths are getting to that kind of range. I guess the right way to think about it or any way to think about it is breaking it, a, there's going to be a contribution from a revenue side. So we're going to continue to drive margin through the ongoing class conversions as we just talked about a second ago, we continue to increase the number of assets, the MS assets on our platform. So that's going to continue to drive. There's obviously some annual seasonality that drives it in Q4 as well to that helps us. And we're also moving -- so those are all margin drivers from a revenue perspective.



From a cost of expense perspective, we started our restructuring activities, interesting activities is the annualized the impact for the full year. We remain committed to continue to build out the GST in India in addition to the wage arbitrage that we're getting, we're benefiting from the strong talent that's sitting there, and the ability to standardize on best-in-class processes and centrally for the organization is a phenomenal productivity led for the organization.



We're also in addition to a lot of the new offers that we're rolling out for clients in Q4. There are internal releases that we have now that we're using internally to drive greater productivity for our people, for efficiencies across data management, data adjust and really just overall productivity lift our organization. So that's just a handful to just give you a flavor of the commentary around the fact that we have multiple paths.

[Paul Treiber, analyst]

That's helpful. Just in regards to the outlook for 2016 is nice to see that you're reiterating it. But can you help explain what you see as the drivers of the be like a cyclical recovery in the mark in either secular drivers or product catalysts that you may have between now and then that would help drive that growth and margin expansion.

[Jim Hannon, executive]

Sure. I'll take that one. Pawan feel free to jump in on it. Paul, it's a lot of the same -- so the margin expansion part getting the 35, a lot of that is what Pawan just went through, so I won't reiterate those. But as I said, we have new products in the hands of clients right now. We'll be, I'm not sure if you're going to be at the Connect event. We'll be demonstrating those products there, the COGA. As I said, there's pricing lift.



The products that probably [indiscernible] in the hands of our people internally right now for our own folks as well as for our clients. It's all one platform. So you get the same benefits across both. So we expect our total addressable market is going more efficient with their clients. So there's a giant world of CRE clients out there who are not DMS clients who could benefit from that technology. And our core focus is on -- like our near-term focus is on data management mostly around the Office ID and asset performance. And again, asset performance expands our addressable market. So those are 2 key areas that will drive that growth through '25 to '26 on top of organic just market recovery.

[Pawan Chhabra, executive]

That's right. And the slower transition of the DMS bookings to revenue this year, which was a headwind relatively speaking, will turn into a tailwind as that market recovery happens as we think about '25 and '26, so that gives us additional confidence in regards to our trajectory.



If you've heard a lot of our peers in the market in general that are starting to show in terms of insulation continuing to take a gradual cost lower, which is leading us hopefully closer to the first marine cuts in the U.S. We already saw Canada to do it a second consecutive rate cut, which is increasing our clients' confidence on the stabilization of prices. We heard Jim talk about our own data showing about cap rates increasing at a smaller rate, which is also another green shoot in terms of confidence around price discovery, just talking to our teams internally and their quiet ground also are becoming more and more inquisitive in regards to our services. It's showing a greater increasing willingness to buy assets at the ask. And so all of those to us as you start triangulating those data points gives us comfort in regards to the fact in fact that what Jim says, it's not a matter of if, it's a matter of when and it gives us comfort in reversions we think about '25 and '26.

[Paul Treiber, analyst]

Can you speak to the capital allocation strategy following the divestiture of property tax, just doing basic math, it looks like you'd move into a net cash position for the company going forward? Or is there other potential uses of cash, there's acquisitions, buybacks, et cetera, that could consume that cash?

[Pawan Chhabra, executive]

Yes. And again, what we tried to outline in our previous conversation a month or so back in regards to capital allocation is really at a high level, laying out the capital allocation framework. And so from a framework perspective, we're going to continue to invest organically in the business to drive our EBITDA and revenue growth. We're going to continue to remain committed on our dividend. We set a target leverage base that gives us capacity to be able to not only do a meaningful share buyback program, which we've talked about, but also give us the capabilities to be able to do strategic M&A if and when it makes sense as it fits into the core of our business.



And so from a use of cash perspective, that's kind of the math in regards to, I guess, the big picture in regards to how we think about line.

[Operator]

[Operator Instructions]. Our next question comes from Yuri Lynk with Canaccord Genuity.

[Yuri Lynk, analyst]

I've been answered. Maybe just a little bit on what your clients are saying in terms of the new product rollouts, especially the ones leveraging AI, I think some of those launched last year, and just wondering what the uptake is on Altus Market Insights.

[Jim Hannon, executive]

Yes. So Market Insights is a broad category, Yuri. The one you saw us talk about was bringing the CAPM approach into commercial real estate. And the analysis that was out there, you need to be able to effectively manage your data to identify your top-performing assets and then a evaluate files. So the Market Insights business includes our Reonomy business. It includes of the state of studio in Canada. And so there's ongoing interest in that, as we said, that business in Q2, but it is transaction related, if they're not doing transactions, they're not looking for those other properties. So great feedback from clients on it. They're saying, when we transact, that's where we're going.



The second piece of it is the product that we have in beta with several clients now who will be on stage at the Connect events. And that product is all about increasing the use -- simplifying the usability of ARGUS Enterprise and increasing the utility of ARGUS Enterprise. So it's a very modern UX on it, but it also allows clients to achieve model assumption changes in ARGUS from a very simplistic interface, and we'll also be rolling out benchmarking data to the clients who are on cloud and subscribe to those new interfaces.



So those -- this is in the 3.5 years I've been with the business. I would say this is, by far, the greatest period of innovation -- of delivered innovation I've seen out of the teams and the most heightened direct collaboration to get customer input into the developments. So we've shifted to a much more agile development process, and it's paying dividends.

[Yuri Lynk, analyst]

Okay. Just a follow-up on your comment on corporate costs. I thought initially, corporate costs were going to be elevated this year because of regulatory approvals on the Revs acquisition that goes away, but you're still kind of pointing to higher corporate costs in the back half of the year, and I thought they might have gone -- might have been gone down in the back half. So just what's driving that?

[Jim Hannon, executive]

Yes. So the Revs acquisition would have significantly changed our asset mix in the U.S., which would have mandated in the very near term, different filings. So that was driving the cost -- some of that cost we contracted to say what -- like how would we -- if we chose to at some future point move to U.S. GAAP -- there's a lot of reuse of that work and some of it we have the teams in place to perform. So some of that's going on. There won't be -- over multiple quarters, there will not be any stranded cost from that as we keep our optionality in Q3, Q4 will come down a bit, but we just have an exit rate into Q3 that puts us just a bit higher than the first half.

[Operator]

Our next question comes from Richard Tse with National Bank Financial.

[Richard Tse, analyst]

So you made some acquisitions over the past few years for technology. And I think you sort of built things organically as well. As you move forward, how should we think about the impact on pricing here? Are you going to sort of go to your existing base and start to bundle these things to reduce the complexity. And I'm just trying to understand why you're doing that?

[Jim Hannon, executive]

Sure. There's 2 things. Richard, you've seen our offer structures where we do essentials advanced and premium that will come more into play here as several -- Pawan talked about several of our largest ARGUS clients yet to transition to cloud, they've been holding off for innovation and they're seeing the innovation now. So that's why we expect that they're going to move. So with some of those clients, there's -- for their portfolio parts of their business, they're shifting to the asset pricing model that we've been talking about for a while. So that's one piece of it is an entire shift in how we think about pricing and the value that we deliver to clients.



There's still the more base use case of acquisitions where you have a transaction that requires an Argus model. And we're not going to force those clients to take an entire suite of products around that. We understand that use case, and we need to protect that use case for our clients. That said, there is more core functionality in all 3 offers that are going to market. So there will be a base price increase. Pawan talked about pulling back of discretionary discounting that as renewals are coming up, and that's today. We're realizing that.



The next piece is there will be a list price increase to Argus to accommodate the additional feature functionality. And then there's the asset-based pricing for more of the portfolio management aspects of the product, which commands a significant premium to the current ARGUS base case functionality.

[Richard Tse, analyst]

A quick one. With respect to organic growth for analytics in the quarter, are you -- can you share that number with us?

[Pawan Chhabra, executive]

Are you talking about the organic recurring revenue growth in the quarter?

[Richard Tse, analyst]

Correct.

[Jim Hannon, executive]

For Q2.

[Pawan Chhabra, executive]

Yes, just in from our D&A we talked about in the opening remarks, and we talked about it as being at 4% on an organic basis, and I think at one from the former acquisition. I think I'm answering your question.

[Richard Tse, analyst]

Okay. Maybe we can take it off-line. It's fine. I'm good. Thank you.

[Operator]

We have no further... [Audio Gap]

[Pawan Chhabra, executive]

Hi, are we connected?

[Operator]

Yes, you are connected.

[Pawan Chhabra, executive]

Remarks recurring revenue did grow 5.5% in the quarter with your -- your question was on the organic growth. It's 4% on an organic basis, again about 1.5 point lift from the Former acquisition. I think it's important to note in there, though, that Argus and VMS revenue performance is pretty resilient in the quarter, and we did get a moderation in that growth rate as it related to the Data Solutions piece. So to answer your question, 5.5 all-in 4% organic.

[Operator]

We have to Jim Hannon for any closing remarks.

[Jim Hannon, executive]

Okay. So I just want to reiterate to everyone, well, sorry for that drop. We don't know what happened there. But this is -- when we gave the guidance for 2026 and the path there, again, we knew that we were going to be shifting some revenues out of '24 to '25. So we feel good about our -- into those quarters with a lot of tailwind. We should have a much more favorable economic environment, hopefully, just the global macros of other social drivers there will be okay. And there's a lot of elements that support that 26% growth rate that we've put out there. So I appreciate everyone being on the call and look forward to the one-on-ones. Thank you.

[Operator]

This will conclude today's conference call. Thank you all for your participation. You may now disconnect.