Altus Group Limited (AIF) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Altus Group's Fourth Quarter and Full Year 2022 Financial Results Conference Call. [Operator Instructions] As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Camilla Bartosiewicz. Please go ahead.

Thank you, Carl. Good afternoon, everyone, and welcome to Altus Group's fourth quarter and full year results conference call and webcast for the period ended December 31st, 2022. The news release announcing our results was issued after market close this afternoon, and it's posted on our website and SEDAR profile, along with our MD&A and financial statements. A presentation to accompany our prepared remarks as well as the CEO Letter to Shareholders has also been posted to our website under the Investor Relations. Joining us today are CEO, Jim Hannon; and our new CFO, Pawan Chhabra. We'll start with some prepared remarks and then we'll move right into the Q&A session. If we miss any questions, please contact me directly by email. Some of our remarks on this call may contain forward-looking information. Forward-looking information is based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. Forward-looking information is further detailed in today's news release and in our related MD&A on SEDAR. All of the forward-looking information discussed today is qualified by the cautionary statements included in those materials and in this accompanying presentation. Please be reminded that Altus uses certain non-GAAP financial measures, non-GAAP ratios, total of 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 similar entities, and accordingly may not be comparable to financial measures as reported by those companies. 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 detailed in today's IR materials, including the news release, presentation, MD&A and with our filings with the Canadian securities regulators. I would also like to point out that unless otherwise specified, all the growth rates we will be referring to on the call today are on a constant currency basis over the same period in 2021. Before I turn the call over to Jim, I would just point out some changes in our MD&A, namely this captures business nomenclature that we feel reflects more conventional labels and more accurately describes the metric in line with their existing definitions. For example, overtime revenues have now been renamed recurring revenue and bookings was renamed new bookings to be clear that this metric includes -- particularly since we exclude the contract value of renewals. We're also now providing a split between recurring and nonrecurring bookings. To be clear, we are not making any changes to how we account for these metrics. Both Will reconcile with our legacy reporting. Other changes include branding-related tweaks to certain business labels such as valuation of costs now being referred to as appraisals and development advisory, the addition of free cash flow is a new capital management metric and a refresh of some of our MD&A disclosures to help new investors better understand our business. In the spirit of continuous disclosure improvements, we have more changes planned for 2023 P&L reporting. Okay, over to you, Jim.

Thanks, Camilla. Pawan, welcome to your first earnings call at Altus. We're really excited to have Pawan join the executive team given his impressive track record at high-growth tech companies. Pawan is a great addition to the crew. It's only been -- not even been a couple of months and Pawan's already making significant contributions with his fresh perspective on the business. I'll kick off with a brief review of our '22 highlights and then turn it over to Pawan to review our fourth quarter results. I'll come back at the end to discuss our business outlook and priorities for 2023. 2022 was a period of business transformation and growth for the company. We made significant progress against our long-term strategy while improving our business operations. This included optimizing our operating model, our go-to-market approach, platform architecture, as well as our front- and back-office infrastructure, quite a lot to accomplish in a 12-month period. I'm incredibly proud of the team for the hard work that went into it. Guided by our management philosophy of simplification, focus, and execution, we built a solid foundation to drive operational excellence, platform economics, and to maximize our operating leverage so that we can scale even more effectively. And more importantly, clients continue to engage with us on their most strategic efforts, reinforcing our role as their trusted source for asset and fund level intelligence. We're quite pleased with our financial performance in 2022. We finished the year with CAD 735 million in revenues, up 18%, and CAD 135 million in adjusted EBITDA, up 23%, with a 90 basis point improvement in our margins. This translated to CAD 53 million in free cash flow, up 15% over 2021 on an as-reported basis and CAD 1.89 in adjusted earnings per share, down CAD 0.01 from 2021. That's due to our -- primarily due to our restructuring program. We improved top line growth across all of our business segments, and we grew adjusted EBITDA at the group level driven by the standout performance at Analytics. Our Property Tax revenue, while at record levels, was moderated by the ongoing slowdown in appeal settlements in the U.K. Our improved operating posture in 2022, demonstrated by our recurring revenue growth, new bookings growth, and cash flow improvements, sets us up for sustained growth in 2023. More on that after Pawan covers off Q4 results. So Pawan, over to you.

Thank you, Jim, and the entire Altus team for the warm welcome, and good evening to everyone on the call. I'm looking forward to meeting many of you in the coming weeks and months. I'm excited to be joining Altus Group at a critical inflection point of our transformation. To the credit of my predecessor and the rest of the executive management committee, the team has done an outstanding job positioning Altus for success. I look forward to building on this foundation and the ongoing execution of our strategy. In fact, to Jim's opening comment on optimizing our front- and back-office systems, I am pleased to share that we have started the year with a new finance ERP system. This single source of truth will be the backbone for driving productivity, efficiency, and increased collaboration across our operations. Beginning with our consolidated fourth quarter results. Revenues were up 10%. This represents the seventh consecutive quarter of double-digit top line growth, of which 6% was organic. Profit was negative this quarter, primarily due to the restructuring program that Jim just mentioned. Adjusted EBITDA was up 31%, driving a nice 310 basis point improvement in margin, which stood at 19%. Adjusted EPS came in at CAD 0.44, up 5%. And free cash flow was CAD 19.2 million, a substantial improvement over the prior period. In Q4, we completed our 2022 restructuring program. This resulted in a CAD 17 million restructuring charge in the quarter, of which the bulk was related to employee severance. The full year restructuring program charge was CAD 38.9 million. We expect cost savings related to this program to flow through into 2023. Turning to our business segment performance, starting with Analytics. We have proven that we can drive high growth and expand margins at the same time. That's the path we're on at Analytics. Revenue was up 27%, and notably, recurring revenue was up 38%, most of the growth being organic. We're seeing improved sales productivity and continue to benefit from healthy demand for our offers. A high percentage of our revenue growth continues to come from our existing customer base where we have significant runway for wallet share expansion. We're also growing internationally, while accelerating growth in North America, validating the sizable opportunity we still have in our core markets. Adjusted EBITDA continues to grow with the higher revenues and improved operating leverage. The adjusted EBITDA margin in the quarter reflects revenue growth and improvements in our operating model. These improvements include focused go-to-market activities, cross-border salary leverage, streamline processes, and better resource management. Our full year margin of 20.7%, a 410 basis point improvement, demonstrates our strong operating leverage. This reinforces our confidence of continuing to expand margins into 2023. Recurring revenue growth is an important KPI for us. It's where our investments have been focused. We're really pleased with the 38% growth in the quarter and 44% for the full year. At CAD 302 million for the year, recurring revenues represents approximately 87% of total revenues. This provides us with a resilient revenue base. Turning to new bookings. As Camilla pointed out, this metric only captures new business, not renewals. Our new bookings continue to be strong at CAD 34.2 million, growth over an exceptional Q4 of the prior year. This is a solid leading indicator of future growth. Most noteworthy, recurring new bookings were CAD 20.8 million, up 15% year-over-year. We expect continued absolute recurring bookings growth. Turning to a quick update on ARGUS Cloud adoption. We ended the quarter with 64% of our ARGUS Enterprise users contracted on the cloud, right on plan. We expect to have a large majority of our ARGUS Enterprise users contracted on the cloud by the end of the year. Turning to the reportable segments under the CRE Consulting business unit. Property tax was down in the quarter, consistent with our expectations. The growth in the U.S. and Canada was offset by a decline in the U.K. As covered on the last earnings call, the U.K. continues to be impacted by the slowed CAD ence of settlement volumes due to the valuation office's resource constraints. This leaves us with a higher backlog of opportunities as the volume throughput at the agency ramps up. Appraisal and development advisory performed steadily in the quarter. This reflects continued healthy market demand and effective sales execution. And finally, turning to our balance sheet. We finished the quarter with a cash position of CAD 55 million and with CAD 320 million in bank debt. The funded debt-to-EBITDA leverage ratio, as defined in our credit agreement, steadily improved to 2.13x, below what it was in Q3 and well below our limit of 4.5x. Applying our cash, the net debt to adjusted EBITDA leverage ratio was 1.96x. Regarding our capital allocation priorities, we'll continue to reinvest in the business to scale effectively, opportunistically pay down debt, and maintain financial flexibility should attractive acquisition opportunities materialize. With that, I'll now turn it back to Jim.

Thanks, Pawan. As you just heard, solid finish to '22 against the backdrop of a very busy period of business transformation activities. I appreciate the tenacity and hard work of my colleagues. Their efforts and commitment to our mission are driving the growth and future success of the company. Our mission is to help our clients maximize performance and manage the risk of their commercial assets. In today's environment of high interest rates and inflation, this is especially relevant and drives increased demand for our offers. We continue to closely monitor leading indicators and customer activity. And thus far, our outlook remains positive. Our sales pipeline is building, we have sustained our bookings growth, and our sales cycles or project implementation timelines are consistent with our expectations. I've laid out on the slide, we believe we have a fairly resilient business model with offers that drive quantifiable value for our clients. Above all, we have flexibility to respond to changing client needs and to pursue our business strategy across various economic cycles and market environments. The investments we pursued provide us with sustainable improvements that give us confidence in our ability to successfully navigate a dynamic global business environment. In 2022, we proved we can significantly grow revenue and expand margins. Looking out through 2023, we expect to do the same. We're strongly positioned to grow our consolidated revenue and adjusted EBITDA. Our 2023 outlook includes sustained consolidated revenue and adjusted EBITDA growth. On an organic constant currency basis, this includes double-digit revenue and adjusted EBITDA growth in Analytics with continued margin expansion; absorbing a down-year in property tax due to market cyclicality, as previously discussed; and single-digit revenue and adjusted EBITDA growth in Appraisals and Development Advisory. The Analytics business model transition and reorganization is now in the rearview mirror. Our results demonstrate the benefits of the new model with high growth in recurring revenue and recurring new bookings and adjusted EBITDA margin expansion. The momentum is expected to continue into 2023, particularly as we ramp up investments in sales, marketing, and R&D to further capitalize on the market opportunity in front of us. At Property Tax, while we anticipate growth in the U.S. and parts of Canada, we don't expect to fully offset the impact of the annuity reset in the U.K. We will continue to invest in customer acquisition activities with focus on strengthening our position for a rebound in 2024. Our pipeline of cases to be settled in future quarters remains robust, which provides a positive backdrop for future growth. A high percentage of our tax clients engage our services consistently year-over-year or as cycles occur. While the specific assets may change year-to-year, the clients remain. To wrap up, with the investments and changes in systems architecture and operations largely behind us, 2023 is moving from business transformation to scaling profitable growth. Our focus this year is on the following 4 priorities. Priority #1, scaling the company, we'll double down on accelerating our expansion by: a, defending, connecting, and growing our core franchises; b, extending those franchises through carefully selected adjacencies; and c, reaching into new market segments through advanced analytics-driven capabilities. We believe the latter will double our total addressable market. Priority #2, operating efficiently. We made great strides in 2022 and continuous improvements are critical. We'll continue to maximize our operating leverage through improved efficiencies, prudent expense management, and optimizing our investments. In 2022, our investments were predominantly focused on strengthening the internal processes infrastructure and capabilities of our technology. In 2023, we'll be investing in sales capacity, marketing, client success, and R&D. Priority #3, creating customer value. We'll build on and evolve our capabilities to meet client needs for improved performance and better risk management. We started the year with a soft launch of our latest Altus Market Insights premium edition offer. As discussed on the last call, this new offer expands our market intelligence and predictive analytics capabilities. With this offer, we're responding to a clear customer challenge. Customers are looking to bring nontraditional data from disconnected systems into their decision-making processes. In short, we're combining disparate data from Altus, the market, and clients to create unique insights around future market and asset performance, such as forecasts of future NOI performance and insights into key market risk and growth drivers. This is the first offer of its kind for Altus and connects our valuation expertise and data with data science capabilities to produce valuable insights for our clients. Equally important, it will significantly reduce our clients' time from months to weeks to build predictive models for their portfolio, enabling clients to make informed investment decisions faster. And Priority #4, engaging talent. It's about placing the best people in the right roles and empowering them for greater performance. We're continuing to make investments in our employee programs to position Altus as the employer of choice. We have a long and global growth runway ahead of us. CRE is a major asset class, yet digital transformation still lags other established sectors. Asset and fund level intelligence remains largely fragmented as CRE firms ingest vast amounts of unconnected data and grapple with new technologies to extract value from this data. We're uniquely positioned to connect the dots here. By connecting high-quality asset data and technology complemented by our deep industry expertise to deliver actionable intelligence that drives performance and mitigates risk. Our investments over the past 2 years, organic and acquisitive have been oriented towards delivering advanced analytics that will bring our industry from insight to foresight. We remain focused on executing this plan. I'm looking forward to continued success in 2023. Okay. Let's open the line up for questions. Operator?

[Operator Instructions] The first question comes from Yuri Lynk of Canaccord Genuity.

Good quarter, especially in Analytics. I want to talk a little bit about the growth, which seem to be driven by same customer expansion. Is that a reflection of your move into adjacencies or more a function of selling additional subscriptions of your traditional offerings into existing clients?

Great question, Yuri. It's a couple of things. One, the growth was not limited to just existing clients. But as we've discussed, we have -- a significant amount of our focus is on our high-touch clients who will be consuming the more advanced offers. So we added over 240 new logos, again, to the Argus portfolio in Q4. So there is growth at both ends of the market as there has been throughout the year. And we have large clients who are taking more advanced capabilities. And we've also seen more moves into valuation around debt portfolios in the market, which was something we were expecting and targeted and are well positioned to help clients with.

Okay. That's fair. Follow-up for me just on the Analytics margin guidance for the year. I understand you're looking for margin improvement. But do you care to put a band on that like 25% to 30%? Is that the range we should think of? I'm just trying to think about how we balance that improvement with the investments you're going to be making in the product roadmap, R&D, sales, marketing, all of that.

Great. So the -- I think I said this at the end of the Q3 call where we put up 590 bps of improvement. The numbers you're seeing coming through right now, we will have significant margin expansion. However, we made the conscious decision when we flipped the Analytics operating model to hold off on adding go-to-market capacity until we were sure that the teams were trained, understood the new offer structures, that we had our pricing worked out, that we had all the sales enablement in place. So it's at this point that we are adding capacity from a SaaS metrics model, which we don't put out there from an LTV to CAC, everything says we should be ramping up those investments now, and we will. The teams, after putting an entire year of great recurring bookings, are clearly ready to expand -- move into more managerial roles and expand our coverage. That coverage is not geographic expansion. A large amount of that growth we expect in the U.S. actually. So it's doubling down on sales capacity. We'll be increasing R&D investments. And as we're executing towards our target operating model, meaning expense to revenue ratios, up and down the P&L, cross-functional expense. We realized we needed to increase our investments in marketing, which we're doing as well. So margin expansion will be there, not at the same rate as the actuals, and that's a conscious investment decision we're making to capitalize on the market growth opportunities.

The next question comes from Christian Sgro of 8 Capital.

The first one I'll ask is on the cloud adoption rate, and we've achieved all goals for the year. So maybe you could speak a little bit to the pace of migrations to the cloud. Once it's been contracted, the pace that customers are moving over at? And then how you're thinking about positioning the sales strategy around this move?

Good question, Christian. From a sales strategy, there's obviously still 35% of our current base out there. But as we said, we continue to add hundreds of logos to the Argus franchise every quarter. So there's still a lot of room at the high-touch part of the market as well as the scale part of the market to add new clients. So we're constantly changing that numerator and denominator. But we also expect now -- I think I said this a year ago when we were at 42% that we're at that critical mass where the largest investors have gone to cloud. Most of the largest service providers have gone to cloud. The rest are going to follow. I look at Analytics as we're a cloud company. So we expect a similar rate of growth this year, but now it's just a matter of when contracts expire and when the clients up their contracts and go to the cloud because that's their choice.

Okay. Perfect. And the second question...

It wouldn't be a great choice from a roadmap perspective to not go to the cloud.

Understood. I think the second question I had, and maybe related, you touched on the launch of the Altus Market Insights offer, which is now live. So any commentary you'd share on the go-to-market there, the strategy in conversations with customers? And if there's been any feedback to date and recognizing it's early days?

Right. So this is where we're seeing the power of flipping the Analytics go-to-market model a year ago or 1.5 years ago now where the sales forces were very segmented from the folks who did valuations to folks who are ARGUS Enterprise experts and then the data people were separate. We've been cross-training that team for 18 months now and cross-pollinizing the team, so they all sell the whole Analytics portfolio and are well-versed in doing so. And we're expecting that connection of data and then the advanced StratoDem Analytics capabilities we picked up last year, it's all converging right now and those should really not be separable items going forward. So it's just one sales motion. We've greatly simplified the portfolio from a consumption by our salespeople and by probably our clients going forward as we move to this offer structure. You can think of it as good, better, best type approach where good is effectively self-serve, better is light expert touch, and then full premium is effectively turnkey. So we're trying to make the portfolio as simple for the sales teams to position and for the clients to consume.

The next question comes from Richard Tse of National Bank Financial.

Congratulations on the new role, Pawan. If we look back out further, you're obviously getting a tremendous amount of operating leverage opportunity in Altus Analytics. When this business hits kind of scale, what do you think is kind of a reasonable normalized level of margins there?

This business will run in at scale. It will run in the high 30s. Now measured march to get there. We're constantly balancing the investment in growth and just always testing market assumption. So there was a lot of consternation in the market last year with rising interest rates. What would that mean for our clients? Our clients are taking advantage of depressed pricing and putting capital to work, which translates into a higher volume for us. So, yes.

Okay. And then in terms of acquisitions, how do you look at acquisitions in rising rate environment? Does it impact your ability, your appetite at all?

As Pawan talked about, we have significant capacity in our lines. Last year, we looked at the market, and it was like trying to catch a falling knife. We have strong partnerships across the ecosystem that could lead to acquisition opportunities. Our approach is primarily let's partner, let's build the relationship, and let's prove out the combined business models. That's what the markets -- let's ensure that we were not heading into troubled waters, which we were not, as we've shown. And so with the higher interest rates, we have higher interest expense on the P&L which you can see from the rates, but our capital capacity is stronger than it's been in years.

Okay. And just a really quick one here. I think you talked about a reasonably strong pickup in terms of selling into the base. And then you also said you got a lot of new wins. Would you be able to share the mix of growth coming from new versus existing customers? Or is that something that you're not sharing at this point in time?

We're not breaking that out right now.

Any plans to?

Any plans to? I assure you, we're managing it internally. As Camilla said, we are -- you've seen we've made changes -- some changes to the financial statements and the MD&A. We are looking at getting to more traditional SaaS-type metrics in our disclosures. I'm not going to commit to Q1, but we're setting the teams up to be able to report the business differently and more traditionally with SaaS companies.

Okay. Fair enough.

But yes, plans to -- Richard, to answer to any plans to, yes.

The next question comes from Daniel Chan of TD Securities.

With the large proportion of your user base now in the cloud, what would you say are your largest near-term opportunities? Is it still the cloud migration for the remaining 1/3 of your customers? Or has something else now moved to the top? I know you're very excited about the cross-sell. So is it that, or is there something else?

It's both -- it's those in combination. As I said, now it's a matter of existing contracts terming out and then getting the conversion of the majority of the rest of the base over. And with 64% of them there, the amount of data and derivative analytics that we can do off of that data increases every single day, which just accelerates that cross-sell, which we're already having success with. So it's both.

That's helpful. And then on the cross-sell, do those typically happen when the renewals happen, or are you able to get those to occur outside of the renewal dates?

The cross-sells have been happening outside of the renewal dates. So we had a new equity valuation client, I guess, about 2 years ago that moved into the advanced analytics end of last year and have moved into -- I'm sorry, end of '21 and then moved over to their debt portfolios with us. So those are -- that's all just new business for us. It's not really timed -- the advanced analytics aren't really timed with the ARGUS Enterprise contracts. However, we made it where you can't get the advanced analytics unless you're on the cloud.

The next question comes from Paul Treiber of RBC.

Just in regards to bookings, obviously, a good quarter here. You had an interesting comment just about having limited sales capacity this year. Do you have a sense for the year what's the magnitude of bookings that potentially were constrained, just given the limited sales capacity? Or maybe another way to ask it is, what's the magnitude that your current LTV to CAC is higher than what you see as your long-term target there?

You know I love that metric, Paul. And I want to -- there's a lot of capacity to grow. We needed to get the machine running smoothly before we brought more capacity in and then had to bring everyone up to speed. It was let's get the existing team up to speed on the new offers, so that you have that waterfalling effect of training the trainers. And we were watching the market, the macroeconomics of the market throughout last year. So could we have done more? Yes, we could have covered more market segments. And now we're very comfortable ramping up those go-to-market investments to capitalize on that.

And in terms of the offers, I think they're actually well laid out in the Annual Report, the 4 of them and the 3 different versions -- go-to-market versions. So the one of them you have a soft launch. What's the timing of the others? Should we expect them through this year? Is it going to take a couple years there? And then just availability -- general availability of the 3 different go-to-market versions for those?

The general availability will -- outside of tax, the general availability will be there -- I'm sorry, I should say, outside of tax for all geos that we currently serve, all the flavors of the offers should be in the market in 2023. So it'll be rolling out throughout the quarters. But most flavors of the offers are there in some form today. You can see our comments were heavily weighted around scaling profitably and that's delivering advanced analytics at scale, and that's where the architecture, the Altus performance platform that we talked about on the last call comes into play to deliver those advanced analytics with scale. So we can produce the advanced analytics today. It's about ramping up the volume of doing it, the speed of training the models.

And it's interesting on Property Tax, you do mention in the MD&A as one of the key offers. Is it because you're building that product or the offer effectively from scratch for the 2 other flavors? You obviously have the turnkey version. And is that the reason why it will take longer to release to market?

Well, it's -- the Rethink acquisition from early in 2022 gives us the itamlink product, which allows us to go to market today. We have a fairly large client base of large clients who are choosing self-serve options for managing their tax appeal process. That product is primarily sold in the U.S. today. So we have go-to-market plans on that to increase our rollout across the U.S. and then drive adoption in Canada. For the U.K. market, it's not completely fit for purpose at this moment, but that's a short development cycle away. And all of that is being reconciled with our AGP, the one architecture that we're rolling out, so that we're ingesting data from all of our franchises and we're turning all of that -- then taking that data, linking it together through the technology that we picked up in the Reonomy acquisition, rolling it into the modeling capabilities that we picked up with the StratoDem acquisition, and then absorbing across the ARGUS Enterprise Cloud information and our valuation management solutions, information which is very tech-oriented already. This is bringing all the data into one consumable platform to train the models to deliver the analytics.

The next question comes from Scott Fletcher of CIBC.

I wanted to ask another question on the property tax. You put a number on the annuity billing that's not going to come through in 2023. But I'm wondering, is the backlog also going to result in this non-annuity piece in the U.K. also declining year-over-year? Or maybe you can correct my read if that's not how we should be looking at it.

The specific backlog is not a metric we put out there, but it's one that we watch very closely. So we could have mitigated some of the EBITDA decline that we saw in the year that's driven by -- on the tax side of the business if we had pulled back our go-to-market resources more aggressively. However, as there's still an opportunity for the next month -- about the next month to still pursue clients in the U.K. against the 2017 list. And when we do that, that revenue will flow back for 7 years. So these are highly valuable clients to still close. So even though we knew the constraint was not go-to-market, it wasn't client acceptance. It was the throughput of the valuation office. So our backlog for the U.K. has increased. It's significantly higher than we had expected because it didn't flow through the P&L yet. But the backlog has built. The constraint on next year is not from our side. It's from the resources that the valuation office puts on the processing of appeals. So our backlog is up significantly. That will mitigate some of the headwinds, and we're continuing to build that backlog because it has a very high conversion rate -- a very high predictable conversion rate into revenue for us. So we're happy to still pursue those clients and get those appeals filed.

Okay. And then I wanted to ask a question on the new logo signups. Are you finding that they're adding the Analytics modules at a greater rate than your of existing customer base? Are you finding you're able to do that cross-sell at the time of sale a little easier? Curious on that.

No. So most of the new logos are at the scale end of the market. So they are more the standard edition or the self-serve. So ARGUS Enterprise standalone purchase of licenses. So the new logos tend to come in on the legacy core franchises. It's the high-touch existing clients who are coming in on the advanced analytics, which makes sense because they want to make sure they have a trusted partner that they're turning these types of Analytics over to. And so having the existing relationship makes is logical.

Okay. And then just one last one on the restructuring costs. Obviously, you've cut a lot of salaries over the course of the year. Was most of that coming from the businesses that you acquired? Or was that in addition to that as well?

No. Most of it was not from businesses acquired in the last couple of years. Some of it's from businesses acquired years and years ago that never really integrated. And as you take a look at the consolidated P&L, you'll see our compensation expense is actually up. So this has been -- while many CRE firms that are just -- they're transaction volume-based where they cut, well, I guess, as an industry, thousands of jobs and where the tech industry cut thousands of jobs, we've added jobs on the analytics side of the business. So our headcount is up a bit year-over-year, our compensation expense is up. So it's been a rebalancing to the high-growth parts of the business.

The next question comes from Stephen MacLeod of BMO Capital Markets.

Thanks for all the color you've given. It's been lots of great info. So I don't have a ton of questions here, but I just wanted to ask about 2 things. One is, can you just give a little bit of color around, you talked about international growth also being up in the quarter. And I'm just curious if you can give some indication as to where that fits in your priority stack. And then secondly, are you able to give any more color around Altus Analytics margins for 2023 and how some of those investments around efficiencies might weigh in the current year?

International growth, as far as in the quarter, it's going back, again, 1.5 years ago, we took the then Deputy CEO of the Finance Active acquisition, and he is now the President of Analytics for EMEA. So we're getting the synergy of both of those sales forces selling across the products. Not everywhere. There are some parts of the Finance Active portfolio that's fit for purpose for French municipalities. But many of those team members have taken on the entire Altus portfolio. And having Fred run both organizations get that cross-pollinization of the Finance Active, debt, the treasury management applications that are going into the market as well. So you've got the increased capacity, the team is coming up to speed, the cross-selling, that's what's driving the growth. As far as the focus on priorities, we're staying on our 6 core markets. So U.S., Canada, U.K., France, Germany, Australia. And we saw bookings growth in the Asia Pac region as well. As we've consolidated efforts down there across a couple of business units, we're seeing the synergies there. So we're focused on the core markets. We're not chasing new markets because the addressable market in those 6 core markets is so -- represents such a tremendous opportunity. We know how to serve those markets. It's an easy expansion for us. So I say easy as my go-to-market team's rolling their eyes right now. But we're staying close to the core here because there's so much opportunity in the core. Did that address your question?

Yes. That's great. And then maybe just on the margins as well.

Okay. Yes, on the margins, as you know, Steve, we don't give guidance on that, but we have commented on our capital allocation strategy. And I think if you take a look at the full year '21 to '22, it actually -- it exceeded what we're saying. We said when we think about how we do our planning and allocate our capital, we think that about 300 bps of margin expansion is the right balance of maintaining high growth while expanding margins. We're very comfortable at that level. The operating leverage will go through. If we did nothing else, those margins would expand from where they are in Q4. But as I said, we're adding the go-to-market capacity. We're increasing our marketing spend. We're increasing R&D. So we feel like we're putting -- we know we're putting investments in the right places across the business. So that will tamp down the margins as that capacity comes up to speed. As you guys know, you add sales capacity, you're going to be looking at 6 to 9 months until there, what we would call, a full-time equivalent productive contributor. So it's just -- that's just the nature of getting up to speed on the portfolio and sales in this industry.

Next question comes from Kevin Krishnaratne of Scotiabank.

Just a question on the bookings -- the recurring bookings. Can you talk about the pace of those bookings through the quarter? Was it frontend-loaded or did it come through the end of the quarter? And how do we think about the pace of bookings in Q1? What I'm trying to get at is, I like the new disclosure. We know what the recurring revenue base was at the end of Q4. And I think if we take simply your recurring bookings, divide that by 4, and add that, we kind of get a good starting point for Q1. I'm just trying to think about how to think through in the quarter. And I think it would be helpful if we knew just how the bookings paced through the quarter.

Yes. Great question. Some of the largest -- most of the largest bookings came in pretty evenly throughout the quarter. So we were not scrambling at the end of the quarter to make it. We did have a couple of large ARGUS Enterprise deals come through right at the end of the quarter. But again, it makes sense, when you go back to the legacy of the relationships with these clients, these used to be term licenses or that had renewal dates. So you had that end-of-year push in the old software world. So the fact that these clients are still on that timeline can push them right to the end because they, of course, want to negotiate right to the end as they should. But most of the deals came in pretty evenly across the quarter.

Okay. And any thoughts on what you're seeing in Q1 so far?

The main leading indicator we cue in on is our pipeline coverage ratio. And our pipeline coverage ratio, as we sit today, is -- for Q1, it's about 7% or 8% better than it was at this time last year. Now that's against the higher bookings number as well. So in absolute, the pipeline is higher than last year, and the coverage ratio is slightly better than last year. That's a multiyear -- so we're comparing this to our multiyear trends and what we expect on our coverage ratio. So that's a great sign. When we look forward to Q2, so when we look at our Q2 pipeline of deals, as of this point in time last year, our pipeline is up about 10% over where we were last year. Now it doesn't mean that it's all going to convert at exactly that rate, but that's how we know if our MQLs turning to SQLs, that whole mechanism of top of funnel right through execution, we've got metrics on all of it. And all of those metrics are saying we're in good shape for the quarter against our '23 bookings plan, which is above our '22 bookings plan. Even though we haven't added the capacity yet. We're adding the capacity now. They won't be productive, but just the existing team just continues to up their game.

Okay. That's very helpful, super helpful. Second question for you, last one I've got is, you've talked in the past about moving to more like a value-based versus seat-based model. I'm wondering if you can give us any sense of how to measure, I guess -- I don't know if you want to call it ARPU, but say like ARPU or ACV per customer, ARPU growth per customer, or maybe you want to -- maybe you're looking at things in terms of attach rate as a percentage of AUM as these customers layer on more products. I'm just wondering, I guess this goes back to share of wallet. So is there anything you can provide us in terms of how those are trending and maybe ranges of what your top customers might be in terms of attach rate or percentage of AUM versus maybe not as highly attached to customers? And just give us some views there on the opportunity.

Sure. Again, great question. It's all of the above right now, until we really get to systemically producing the SaaS metrics. So couple of things in there. The ARPU is going up because it's the high-touch existing clients that drove a significant amount of the growth. Those newer clients tend to come on in smaller numbers and then grow over time. So higher at the high-touch because we're really focusing the majority of our resources there, and they're expanding into the advanced analytics, we're seeing the ARPU come up, not only in the current portfolio as we serve, but they're also giving us more portfolios, whether it's on the equity valuation side or the debt valuation side, or the market insights type work. The other way we think about that question is so we have a stratification of our revenues by client size, and then we look at our total addressable market where you talked about attach rate as a percentage of AUM, that's how we size our markets. So we look at what's our revenue conversion or our revenue percentage at an AUM basis, and then we target the clients we don't have and assume that over time we'll get to that same type of percentage of AUM. And then there's the new offers on top of it, which should drive expansion there. But the core way we're looking at it is back to the LTV to CAC ratio. So with the new infrastructure that's in play now, we can segment the market. So the LTV to CAC ratio for high-touch and scale are, as I'm sure you can imagine, are different, and we think about the investments there differently. So at the high touch, the LTV to CAC is much higher, which is telling us double down in those markets, which is why we're doubling down in our core markets where those largest clients reside. At the scale end, the LTV to CAC is still telling us that we're underinvested. And so we have a different market pursuit strategy at the lower end. But it's really going to get down to us being able to produce gross churn down through net retention, and that was the whole point of making the significant capital expenditures into the infrastructure that we made in '22.

This concludes the Question-and-Answer Session. I would like to turn the conference back over to Jim Hannon for any closing remarks.

All right. Well, as always, thank you, everyone, for joining us this evening. This is a very exciting time for Altus, and I'm sure we'll be hearing from many of you from the analyst side and the investor side over the next few days and looking forward to the conversation. So thank you for your time.

This concludes today's conference call. Should you have any further questions, please contact Camilla Bartosiewicz at Altus Group. You may disconnect your lines. Thank you for participating and have a pleasant day.