Altus Group Ltd

TSX:AIF

Good afternoon. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Altus Group's Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call and Webcast. I would now like to turn the call over to Ms. Camilla Bartosiewicz, Chief Communications Officer. You may begin your conference.

Thank you, and hi, everyone. Welcome to the conference call and webcast discussing Altus Group's fourth quarter and year-end results for the period ended December 31, 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 as required, have been filed to SEDAR+ after market 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 segments measures, capital management measures and supplementary and other financial measures as defined in National Instrument 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. Readers are cautioned that they are not defined performance measures and do not have any standardized meaning under IFRS and may differ from similar computations as reported by other entities, and accordingly, may not be comparable to financial measures as reported by those entities. These measures should not be considered in isolation or as substitutes for financial measures prepared in accordance with IFRS. An explanation of these measures is detailed in today's IR materials.



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

Thanks, Camilla, and thank you, everyone, for joining us today. I'll focus our conversation on fourth quarter results, and then Jim will review the financial and operating progress for the full year. Recapping our Q4 results, revenue was moderately up, driven by growth at Analytics, which accounted for 79% of our consolidated revenue base. Profit from continuing operations was CAD 22.9 million, benefiting from higher revenues and a recovery from income taxes, offset by the restructuring program and the impairment charge on our appraisals business.



Adjusted EBITDA was up 51.8%, driving an 800 basis point improvement in margin. I would point out that this included a onetime CAD 4.5 million FX gain on corporate costs. Cash generation, which reflects both continuing and discontinued operations was down year-over-year. On a 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. The decrease is also a function of higher cash taxes paid on higher profits and higher transitional 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%. The strength in cash generation was fueled by strong adjusted EBITDA growth and improved working capital processes. This resulted in a higher conversion of adjusted EBITDA to free cash flow over last year.



As an aside, in Q4, we recorded a CAD 2.9 million restructuring cost globally across the business, bringing us to a total of CAD 12.1 million this year. There will be a new restructuring program in 2025 as we right-size the business following the sale of the property tax.



Turning to the Analytics business segment. We delivered another quarter of top line growth and margin expansion. Revenue growth was driven by higher software and VMS sales as well as contributions from Forbury, offset by a decline in nonrecurring revenue. The double-digit improvement in adjusted EBITDA reflects higher revenues, operating efficiencies and our ongoing cost optimization efforts.



Recurring revenue is a key metric for our performance. It comprises a low churn revenue base made up of solutions that support our customers' most critical processes and workflows. We continue to focus our go-to-market efforts and investments to maintain consistent recurring revenue growth. 94% of our analytics revenues were recurring in Q4 and recurring revenue makes up 75% of our consolidated revenue base.



At CAD 101.1 million in the quarter, recurring revenue was up 5.8%. Our software and VMS performance was solid, offset by softer performance in data solutions. Jim will talk to this a bit more in his prepared remarks. To ground you with some data points, Q4 felt very similar to Q3 with respect to the industry backdrop and frankly, so does Q1. Q4 U.S. transaction volumes were still suppressed. However, we are seeing some green shoots emerging.



For instance, U.S. transaction volumes, while still a decline year-over-year, are seeing another quarter of sequential improvement. Q4 NCREIF Odyssey data shows open-ended fund returns were positive again for a second consecutive quarter after 2 years of negative returns. All sectors, except office saw gains supported by improving cash flows and more stable valuations.



We saw a very similar pattern in Europe through our pan-European valuation data set. European commercial property values also increased for the second consecutive quarter in Q4 of 2024, driven mainly by the industrial sector. This bodes well for our clients, signaling we're nearing price discovery and that the markets are gradually entering a recovery phase.



Our margins continue to expand, up by 630 basis points in the quarter, delivering a 400 basis point improvement for the year in Analytics, in line with our targets. Our margin ramp continues in 2025. More on that from Jim shortly. As you might recall, our medium-term target is to achieve 35% margins for fiscal 2026 at Analytics.



Now turning to Analytics new bookings. This metric reflects new and incremental business. We're pleased with the 10.9% improvement in recurring new bookings, which included a sequential improvement on both software and VMS. But as we previously said, bookings can be lumpy and conversions to revenue can take longer in this current environment. As Jim mentioned last quarter, we're evaluating phasing out this metric in our external reporting and considering replacing it with a more predictive measure.



And finally, we ended the quarter with 82% of our ARGUS users contracted on the cloud, a solid finish to the year and within our expectations. Turning briefly to Appraisals and Development Advisory. While we faced some revenue headwinds, our focus has been on improving profitability. We achieved a CAD 2.1 million improvement in adjusted EBITDA in Q4, up 93.4% over last year and also good sequential improvement over Q3.



I'll wrap with the recap of our balance sheet. We finished the quarter with a cash position of CAD 41.9 million and with CAD 282.9 million in bank debt. The funded debt-to-EBITDA leverage ratio as defined in our credit agreement, which still factors in EBITDA for both continuing and discontinued operations was 2.01x. Our current total liquidity at the end of the year was CAD 309 million. As you recall, on January 1, we completed the sale of the Property Tax business, gaining approximately CAD 600 million in net proceeds, which further expands our total liquidity and ability to invest. More on that from Jim shortly. With that, I'll turn it over to Jim.

All right. Thanks, Pawan. Before I review the highlights of 2024, let's discuss what drives Altus Group. We are here to help our clients improve the performance of their portfolios with a powerful combination of advanced analytics and deep industry expertise. Improved portfolio performance is driven by faster, better decision-making, which is driven by data. Accordingly, data is at the heart of everything we do. This strategic focus guides our investment strategy and underpins our strategic initiatives. While the industry has been navigating a challenging CRE cycle, we've been positioning Altus as a leading provider of advanced analytics.



In 2024, we grew recurring revenue and delivered consistent margin expansion at Analytics. We increased our free cash flow by 23%. We simplified our portfolio by selling property tax. We connected ARGUS models to the Altus ID on our platform via our Knowledge Graph technology. We launched ARGUS Intelligence and bolstered its functionality for performance management, and we initiated a new asset-based pricing strategy to enhance broader user adoption at our clients.



2024 saw the commercial realization of the foundational work completed over the last few years. Now much of the heavy lifting of the building phase is behind us. Financially, in fiscal 2024, the company delivered steady revenue performance with strong improvements in profitability. Full year revenue grew modestly, while adjusted EBITDA was up 23.7%. Recurring revenue was up 6.4%, with sales for our flagship offerings, ARGUS and VMS, both growing faster than the 6.4%.



As Pawan mentioned, the overall growth rate was offset by softness in Data Solutions. The Analytics business proved its earnings power, delivering a 20% adjusted EBITDA growth and 400 basis points of margin expansion. Full year margins were 28.5%, a record high for the business. This fueled strong cash generation, driving an 11.9% improvement in net cash provided by operating activities and a 23% improvement in free cash flow. With improvements in our working capital management and lower overall CapEx, we're driving higher conversion.



We remain committed to our free cash flow conversion target of 65% to 70% of adjusted EBITDA in fiscal 2026. With the sale of tax, we have a very strong balance sheet, which provides 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. We start with funding the P&L to a target operating model or said differently, targeted levels of investment for R&D, sales, marketing, HR, et cetera.



We evaluate strategic acquisitions that accelerate growth, enhance 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. We intend to maintain a moderate level of debt to take advantage of favorable interest rates. In the midterm, we aim to keep our leverage ratio within that 2 to 2.5x funded debt-to-EBITDA range that we've discussed previously. Our debt credit facility does provide the flexibility to increase our leverage up to 4.5x.



We also intend to return capital to shareholders. In addition to continuing our dividend, we renewed our normal course issuer bid. As you may see in our filings, we spent CAD 11 million on share repurchases in 2024. We've completed an additional CAD 6.3 million in Q1 this year. Over the next 3 years, we intend to allocate approximately CAD 250 million towards share repurchases.



Turning to our business outlook for fiscal 2025. We actively engage with our clients to understand their current assessment of markets and expected investment activity. Our clients and our Altus experts expect a gradual multiyear recovery. Our outlook for the year anticipates steadily improving market conditions. The low end of our guidance assumes that transaction volumes modestly increase year-over-year versus a full year decline of 8.6% in 2024.



Notwithstanding unforeseen geopolitical events, which may trigger economic downturns, we expect the second half of 2025 to be stronger than the first half. 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 of property tax was a headline event for us in 2024, we also made several moves across the business units to improve focus and profitability. In our Appraisals business, we sold or closed several underperforming or unprofitable markets. Within Analytics, we sold part of the Finance Active business that had recurring revenues but was not focused on commercial real estate clients. That business required substantial R&D investments and would have dragged down margins and growth rates in analytics.



From a go-to-market perspective in Analytics, we continue to focus on high-margin recurring business with clients. We are no longer actively pursuing onetime third-party implementation service businesses. Although they can represent large bookings, they're not core to our strategy.



Additionally, as we analyze LTV to CAC ratios, long-term value to customer acquisition costs, 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 proactively marketing or selling to those segments as they represent lower profitability and higher churn.



Okay. With that context, at 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. 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 toward the second half. We'll continue ramping margins and plan to deliver 250 to 350 basis points of adjusted EBITDA margin expansion.



Regarding Q1 and considering the restructuring comments provided, we expect revenue growth to be below the full year average in Q1. We expect total analytics revenue to be in the 0% to 2% growth range, recurring revenue growth to be between 2% to 3% and 50 to 150 basis points of margin expansion in Q1. With respect to our Q1 performance, ARGUS software growth is expected to remain steady and above the average for the total recurring revenue for Analytics. VMS will grow but at a lower rate in Q1. 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, we may be nearing the point of price discovery. Additionally, capital continued to flow into CRE in Q4 and redemption queues are declining, all positive signs.



At Appraisal and Development Advisory, we're focused on improving profitability even though it results in lower revenue expectations. You'll see we've called out profitability improvements in absolute dollars even in Q1. With respect to our 2025 corporate costs, we expect that they will remain consistent with 2024 levels other than the FX benefit that we received in Q4.



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. Tying it all together 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, we will increase our pace of investment. Our medium-term targets for fiscal 2026, as detailed in July of last year, remain unchanged. 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.



Altus 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. 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. We enter 2025 on strong footing, supported by an improving industry backdrop, compelling new product capabilities, a 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. Operator?

[Operator Instructions] Our first question comes from the line of Yuri Lynk with Canaccord Genuity.

Jim, just a little more color on Q1, I guess. I mean, how much of this do you think is kind of macro driven? I mean, not necessarily CRE, but more tariffs and all the stuff we see out there. And how much of it is just a continuation of what we've seen in the back half of last year? And in conjunction with that, any kind of data points that give you confidence that you can pull out of this in the back half of the year?

So a couple of things there. Pawan and I both mentioned price discovery, and we're going to that point because our clients are starting to move out the lower-performing assets, which before they weren't because there weren't buyers. So that's why we said we 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, and they're just trying to get the lower performing assets out of their portfolios.



So they're prepping for growth, which is good where they were stuck stagnant for the last couple of years. The tariff impact and the macro absolutely in play. Obviously, it plays into price discovery because the related topic there is cost of capital. So tariffs won't directly impact us, but it will certainly cause lack of predictability of cost of capital for our clients. And our clients, they can adapt to a higher cost of capital. What they don't like is an 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 2023, it doesn't feel wildly different to us. The good news is the Q4 transactions, although they were slightly down year-over-year, not our transactions, the macro market transactions, they were down low single digit versus the 8.6% that I said for the full year. So we're seeing that go in the right direction.

That's helpful. Second one for me, just if you kind of do the math on your full year international versus North American revenue growth for Analytics. It looks like the international grew about 3x that of North America, about 9% for international. There might be some currency there, but can you just -- how is that international business doing? Is it as good as that 9% looks? There's a lot of white space there. So is that new clients? Or is that additions with existing clients on VMS? Any color there would be helpful.

Yes. We've improved our focus of executive sales in international. We have a Head of International specifically right now, which has helped. FX absolutely comes into play here. And Forbury has been a really important driver, whether -- Forbury sells themselves, which the Forbury team keeps exceeding our expectations. We're really happy with that acquisition.



But our clients outside of North America are very happy to see us having acquired Forbury and are, therefore, more interested in the broader Altus solution, particularly as we make more and more progress at connecting Forbury to the platform. And they can see that now, the benchmarking products that we're releasing next quarter that we showed in Boston at our kickoff event where 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.

Your next question comes from the line of Richard Tse with National Bank Financial.

Yes. Sort of along the lines of Yuri's question, when it comes to the environment, would you say that there's a bit more flux now than there was when you reported your sort of Q3 results? I know Yuri mentioned like tariffs, but it just seems like 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?

Yes, Richard, thanks for the question. It's a great question. And if you look at the interest rate environment, it definitely -- rates went higher, I think, post our last call. But certainly, in Q4, they went higher. So there's been -- there was a cautious optimism in Q3. 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.



But I'd say there is -- it's a bit more muted than it was in prior quarters. And we try to track our -- for our public clients who have been out on calls, I think their overall market perspectives have come down from where they were. But you can hear across the sector, there are green shoots where it's like the very high end of CRE, there's been good growth in capital markets business for some of our clients.



But the broader market, I think is still trying to figure out what's going to happen with interest rates. So it's not just the monetary policy of the various countries in play here, but then the -- what will the fiscal policy impacts be on inflation and therefore, cost of capital for clients.

Great. Just sort of shifting gears here. Wondering if you could maybe sort of discuss ARGUS Intelligence and kind of what the uptake or feedback has been and sort of how that's going to play out over the course of this year.

ARGUS Intelligence is going well. As clients have been renewing, they're renewing to ARGUS Intelligence contracts, 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 in totality, we're right on. 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 of the benefits of being on the platform. And it's really nice to be in that phase now versus the, well, this is -- someday we're going to build it and have it. Well, now we're there. Now it's about putting a lot of love around the clients and making sure that they understand the full benefits of it, and they seem pretty excited about it.

And just quickly on the ARGUS Intelligence. So if we look out sort of exiting this year, do you have a number that you can sort of share that you're targeting to have on the platform like in terms of proportion of your base?

The proxy for that is the contracted on cloud. They all come up depending on their own internal IT priorities as to how much of their environment they're turning on. They might turn on a country at a time. But the other part that is really exciting for us and the clients seem to -- it's been very positive feedback is on the asset-based pricing because once they were moving, they're realizing that they can ramp up exponentially more people in their environment to take advantage of our solutions.



So yes, they're paying more, but they're getting a disproportionate benefit of value because they can add folks and they can add various solutions that as they're renewing they're bundling up more and more of our products asking for it in that asset-based pricing. So that's exciting.

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

Just wanted to circle around on 2 things specifically. Just with respect to the new bookings in the quarter, 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 that were signed in Q3. And I'm just curious if you can give a little bit of color around sort of what dynamics you saw in Q4.

Yes, Stephen, it's a fair question. It's a great question. And we talk about the bookings from a growth perspective. And when you're talking about CAD 20 million of recurring bookings, for instance, it doesn't take much to swing a growth rate in terms of just the law of small numbers. And so for sure, there are deals that happen in 1 quarter that a year later is harder to grow over, which makes the 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 the specific growth rates. And so long as we can drive that consistency in bookings, that's really the measure that we're looking for is did we have good consistent bookings across software, across VMS and what's happening on data.



And then secondly, we're looking from a future forward perspective in regards to what is the pipeline telling us in regards to where we're seeing the activity as well too.



And so yes, to answer your question, for sure, there are deals that happen in 1 year that a year later is a harder or an easier grow over, which is, again, why we don't necessarily focus on the percentages per se. It's a reference point, but it's really more about the consistency of it and then how our pipeline is building for future quarters.

Steve, I want to add to that, we have the unfair advantage of we have other metrics that I'm going to reference because hopefully, we're going to get them out in the market soon. But when we look at our net revenue retention and our ARR growth for ARGUS, in December, our new logo component of that was very strong and our upsell was really strong. And that upsell is driven by this move to asset-based pricing, which has helped tremendously.

That's helpful. I was actually going to ask you about those alternative metrics or new metrics but I guess you just gave us a little bit of a taste, which is great. And then I guess, secondly, moving away from analytics, Pawan, I think you mentioned or Jim, perhaps the corporate costs in the outlook for 2025. And I just wanted to make sure I heard correctly. You're expecting corporate costs to be flat year-over-year when you exclude the FX gain you saw in Q4. Is that right?

Yes. That's right, Stephen. Again, we just didn't want -- we did benefit from a onetime FX gain in Q4. And so that's not reflective of the run rate of the business. And again, corporate cost is a big focus area for us. You heard Jim talk about it quite a bit in some of our previous calls in the last 2 or 3. And obviously, with the divestiture of the property tax business, we're going to continue to focus on executing on our target operating model, which will help us to continue to focus on driving corporate costs down over time. But in terms of -- from a modeling perspective, I would just back out the onetime in Q4 and use that as a reference point.

I'd say the one other piece, as I look at the total consensus numbers that were out there, we -- the Street probably took the TSA-related costs and took it -- thought about it as discontinued ops because we said no stranded costs. There were no stranded costs coming out of 2025 post the transition service agreement. So there's several million dollars that remains on our corporate P&L in '25 associated with the TSA of the sale of tax that will be out of -- it will be off the P&L by the end of '25, but there's several million there that I don't think is accounted for.

Okay. No, that was going to be my next question was 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 reflected with a couple of -- CAD 2 million dollars off the P&L for corporate costs.



Yes, absolutely. In absolute dollars, corporate costs come down quite nicely in 2026.

Your next question comes from the line of Gavin Fairweather with Cormark Securities.

Maybe just to start on VMS, just to be clear, I think the script said that VMS contributed to growth this quarter, but you're also kind of talking to the asset sales dynamic. So is this just kind of a little bit lower growth than you would have expected? And maybe just help us square that.

Yes, Gavin, yes, sorry if we weren't clear on that. VMS and Argus both outgrew the entire -- so if you take the entire analytics recurring revenue, VMS and ARGUS both grew faster than that total number. That full year, I think it was the 6.4% number. So they're both growing faster than that. In Q1, ARGUS will do quite well again. VMS will grow in Q1, but the growth rate drops off because of this rebalancing our clients have going on in their portfolios. But it's a temporary situation as they rebalance. So growth, not a decline, still growth, but not at the same rate that we've been talking about.

That's very helpful. And then maybe just can we discuss in a little bit more detail the decision to move away from some of these noncore business lines in analytics? And maybe you can also just help us understand the quantum of revenue that perhaps was tied to those noncore business lines. I know you said that you expect core to significantly outpace the growth rate of this noncore in '25. Maybe any further detail there would be helpful.

I'm doing the piece parts. There were 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. So it's in the quarter -- in Q1, it's north of CAD 1 million when you take all of the pieces together.

Understood. And then maybe for Pawan, obviously, we got your EBITDA guidance for '25, which is super helpful. But maybe you can help us understand kind of the cost 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 some detail there would be helpful.

Yes. Look, 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 conversion and 65% to 70% was the target that we put out there in terms of 2026. When you compare 2025 to 2024, you see a pretty large improvement from a year-over-year perspective as a part and parcel of all of the investments that we've made in our ERP systems and driving to 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.



I would say below the line, 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 rightsizing the business post Property tax divestiture, obviously. We're going to remain committed to supporting the TSA requirements that we have with the sale. But 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 how we're addressing the size and scope of the support functions around the business.



There will be some tax payment charges associated with the proceeds that we got from property tax, which you'll see flowing through our cash flow numbers next year. I guess this 2025 this calendar year. So from a reported perspective, there will be some nuances in the free cash flow as you look at the tax line specifically. But again, that's something that we've incorporated and just part of you get money, so you have to pay the taxes.



But other than the tax line and then again, continuing on restructuring focus and the focus on making sure that we can drive strong free cash flow conversion, it should give a pretty good baseline for us as you think about 2025.

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

You called out soft data solutions. Is that related entirely to the move away from noncore? Or is there other some -- was there some other softness in the market that you saw?

Yes, Paul, a lot of it is because we're just not -- we're not chasing that noncore really SMB clients. But there is also -- there's pricing pressure from other players who 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 there's a profit play for us in not chasing that part of the market, but there's also a pricing pressure play.



The competitors who are going after those markets, that pricing pressure, they're really going for those SMB other type clients. So some of the core clients will come back to us and ask for pricing dispensation to match that. But yes, the competitors are really going for those other vendors that are not service providers, equity investors, debt investors or lenders.

That's helpful to understand. When you look at the guided growth for Analytics in '25, your comments on Q1 and the relative growth of VMS versus Argus were helpful. How do you see it progressing through the year? Is the back-end strength, is that driven equally by both segments? Do you see one more consistent or ARGUS more consistent and the rebound predominantly being driven by VMS?

Yes. Maybe I'll take it, and Jim, you can add in some color. So again, when you think about it and kind of break it down between ARGUS and VMS, ARGUS has been growing at a very healthy, steady clip. Obviously, a lot of our new offers are manifesting its way through the ARGUS Enterprise and ARGUS Intelligence elements of it. But do keep in mind that there are -- a lot of what we're doing from a price-to-value perspective is anchored on renewal dates.



So there is just naturally more renewals in the second half than there are in the first half, which will trigger when you -- when we talked about our growth algorithm in regards to how we're 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. So you'll see heavier renewals in the back half.



And then so even though there's strong growth throughout the year, it would be more slanted towards the back half from an ARGUS perspective. Jim mentioned that what's going on from a VMS standpoint, we are seeing a lot of portfolio rebalancing 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 making sure that they have capital available to redeploy into more profitable sectors. And so as that rebalancing activity works its way through, you will also see -- we're expecting to see a better recovery on VMS in the second half versus the first half. Again, growth all throughout the year, but stronger growth in the back half as our clients put themselves in a position to be able to start redeploying that capital into different sectors.

Right. So said differently, Argus grows faster in the first half just steady, good growth. VMS is more impacted by unstable markets, continuing to grow, but how aggressive our clients get in deploying assets is a function of cost of capital.

Your next question comes from the line of Scott Fletcher with CIBC.

Just wanted to ask a little bit more on margins. Obviously, you had great margin expansion in '24. You're guiding again to sort of further expansion in '25. But if we stack that into '26, it implies that the margins are going to continue to expand at an even faster rate into '26. So just wondering if you could sort of give some more color on what -- on some of the drivers into '26 that will get you to keep expanding those margins even faster.

3 main things, Scott. One, better internal or 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 solve it for the clients, we solve the problem once we get benefit in 2 places. So that's number one.



Number 2 is better leverage and increased leverage of our global service center, which we continue to expand. The third driver outside of volumes is the increased pricing of going to the asset-based pricing, again, because we get a nice price lift, but there's a bit of sleeves from our vest as we allow our -- we don't constrain our clients with the number of users. 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. And the clients are really getting that with the asset-based pricing, which is why we saw good bookings, why we see steady progress in ARGUS.



And then the last piece is we're listening to our clients and everyone is saying steady growth in 2025. Much, much more impressive pickup in '26. And that volume growth just gives us better fixed cost coverage while we're reducing corporate overhead. So it's just -- it's a good mix of variables. We're not dependent on one. We have several levers that are all driving margin expansion.



So even before we were giving guidance, you'll remember, we kept saying the way we think about capital allocation is we start with 300 bps of margin expansion and how we fund the P&L and analytics. Pawan and I are staying with our playbook there, and we think we have plenty of running room to get to our '26 numbers.

Great. That's a lot of info. And then I just want to ask on capital allocation, given you now have the proceeds from the property tax sale. Obviously, you talked about the buyback being CAD 250 million. But 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're thinking about the sizing of M&A as you look at it.

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 a bunch of underperforming investments. Our investments were tech and data oriented in the past. That's what allowed us to get to the launch of the platform and our performance -- our portfolio manager product, our soon coming out Benchmark Manager product. We couldn't have done those without the StratoDem acquisition, which gave us machine learning models. We couldn't have done it without the Reonomy acquisition, which gave us the AI, which does the identity address resolution, which allows us to have the Altus ID. And that's 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 this CRE environment, it's been difficult for them.



So there's 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 we're in a good place to take a full view of what's available. There are things from small tech tuck-ins to medium-sized businesses that have great profitability and growth profiles on it, and we're engaged in several.



But of course, we're balancing that with just our organic cash flow generation because we want to make sure we're returning capital to shareholders at the same time.

Your next question comes from the line of Kevin Krishnaratne with Scotiabank.

Just a question again on the Q1 guide for recurring revenue, 2% to 3%. You talked about you're going to see growth in VMS and ARGUS offset on, I think, the noncore and data solutions. But you also -- I think you're also benefiting from FX, which you did in the current quarter. So like what are your expectations for sort of constant currency growth on VMS and software?



Kevin, all of the growth rates we talk about are always at constant currency. So even though we report as reported, you'll see everything there is constant currency. So all of the commentary that Pawan and I give when we say continued growth rate from VMS, obviously, that's a very heavy U.S. business. So on an as-reported basis, we get an extra kick from that, but we're talking constant currency, and we're growing at constant currency.

Got it. Yes. Sorry, second question I had for me on your annual guide, 6% to 9% recurring. I think you talked on the low end 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% and the 9%, anything related to softer assumptions, faster growth, faster uptake of some of the newer modules that are coming out? Just maybe just remind us again what assumptions are in the 6%, what assumptions are in the 9%?

Yes, it's a fair question. And again, as we modeled 2025 I mean there are a lot of different anchor points that you could look at in regards to how you think about it. And again, a lot of it all kind of boils back to what are you seeing from a transaction volume percentage. As we mentioned to you, like our growth algorithm next year is 20% new logo, 40% existing client, 40% pricing.



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 of modest improvement in transaction activities, which gets us to the low end of our guidance range. Obviously, if we do happen to see 10-year treasury stabilizing or coming down and faster movement in the market, when you think about our growth algorithm, there will be greater lift that's coming from both existing client expansion and from new logos as well, too, which would help us to get to the higher end of the range and the acceleration potentially above that.



But again, our guide really took into consideration of the fact that, one, we've been in a decline for a couple of years. But 2, we are seeing green shoots of the sequential transaction activity improving. We're also hearing better sentiment from our clients in regards to the deployment of capital. And so that's how we thought about the 6% to 9% was just assuming a modest improvement year-over-year growth number in transaction activities should hopefully get us to the bottom end of the range. But there are a lot of variables, right?

[Operator Instructions] It seems that we have no further questions. I would now like to turn the call back over to Jim Hannon for closing remarks.

All right. As always, thanks, everybody, for listening and for the great questions. It's a tough macro. Everyone is watching lots of volatility and how various governments are going about various things right now. So that said, not wildly different than the last couple of years. So remind everyone that we did 6.4% recurring revenue growth while transactions were declining, while we were moving away from noncore.



So I hope that frames out the 6% to 9% a little bit more. The number of renewals we have in the back half of the year, I'll remind everyone it's disproportionately heavy to the second half, and that gives us -- that's where we get the asset-based pricing. That's where we get the lift.



So it's going to be a very different profile in the first couple of quarters than the second couple of quarters, but the macro could come into play. We always have to keep an eye on it, and we've been putting that caveat out 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 growth prospects in '25, and we feel good about '26. So thanks, everybody, for your time, and we look forward to the ongoing questions.

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