Tribe Property Technologies Inc

XTSX:TRBE

Earnings Call Transcript

[Operator]

Thank you, everyone, for joining us. My name is [indiscernible], and I'll be the operator for today's call. Welcome to Tribe Properties Technologies Fiscal Third Quarter 2024 Financial Results Conference Call. Thank you all for joining us today. This call is being recorded. We will be having a question-and-answer session at the end of the call, which will be limited to analysts only. On our call today, we have Tribe's CEO, Joseph Nakhla; and the company's President and CFO, Angelo Bartolini. I trust that everyone has received a copy of our financial results press release that was issued earlier today. Listeners are also encouraged to download a copy of our quarterly financial statements and management discussion and analysis from sedarplus.ca. Please note, portions of today's call other than historical performance include statements of forward-looking information within the meaning of applicable securities laws.

These statements are made under the safe harbor provisions of those laws, forward-looking statements that are based on management's current views and assumptions. Please review our press release and Tribe's reports filed on SEDAR+ for various risk factors that could cause actual results to differ materially from our projections. We use terms such as gross profit, gross margin, adjusted EBITDA and MRR on this conference call, which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definition set out in our management discussion and analysis. In addition, reconciliations between any adjusted EBITDA and net income is included in the press release this morning. Please note that all financial information is provided in Canadian dollars unless otherwise noted.

With that, I'll turn the call over to Tribe's CEO, Joseph Nakhla.

[Joseph Nakhla, executive]

Good morning, everyone. Thank you and afternoon for those of you out East. Thank you for making the time to learn more about our great quarter that we just announced. Can you please start sharing the screen, if you don't mind? Well, let me start by obviously, the headlines of our quarter. It's a quarter that really is an amalgamation of incredible work by the executive team and the staff of Tribe over the past 3 quarters really. As you'll see, the headlines will be, first of all, obviously, about the recurring and the health of the business from a revenue point of view. We had a fantastic quarter, exceeding even what we had signaled a while ago as far as our performance is concerned from a revenue point of view, puts us on a run rate to the north of $32 million. Next year is prior to us even expanding our growth and fulfilling many of the contracts that we have on hand.

That's really driven by just a robust market for our services in addition to obviously closing the acquisition of DMS out of the Ontario market, has been a fantastic partnership and a great addition to our group of services that we offer in Canada. And then the other big news, is the increase in size makes us on the condo side, third largest operator in the space in Canada, and this is just in a really short period of time. 2018, we had less than 40 buildings under management. And today, we've got more than almost 50,000 condos and rental apartments under management, just speaks to the hunger of the street for products and services similar to ours and also the great work that's been done on the M&A and the organic growth that we've been able to accomplish. The other big headline here is the improvement in our profitability.

Anybody that's been listening and watching us knows we needed to build a national infrastructure and that national infrastructure is expensive. It's physical. It requires a lot of compliance to operate in the different markets we operate in, especially in the different verticals that we operate in. And thanks to an incredible amount of work by the team now that we've grown into that size, we had to build the back office to support it, which actually delivers a significant amount of efficiencies, which is starting to be realized in our bottom line. You'll see a massive improvement in our EBITDA, and we continue to be on track for what we set up to do for '24, which end the year in an EBITDA positive state and have a great, great '25 in terms of cash generation.

That said, I'll hand it over to Angelo to run us through the financials.

[Angelo Bartolini, executive]

Thank you, Joseph. Since joining Tribe a year ago, I've been very impressed with the immense potential within this business and the exciting trajectory it has in transforming the property management industry. Despite market challenges, Tribe once again delivered a strong financial performance in Q3 as follows: Tribe achieved record revenue of $8.33 million, an increase of 74% compared to $4.8 million in Q3 last year. Revenue growth was positively impacted by organic growth and the recent acquisition of both DMS and Meritus in Ontario. Gross profit for the quarter was a record $3.03 million compared to $1.5 million in the third quarter of '23, representing an increase of 99%. Gross profit percentage improvement was primarily accomplished by the increase in revenue and the execution of strategic integration and efficiency projects resulting in cost optimizations.

Gross margin percentage was 38.8% in Q3 compared to the same level in Q3 of last year. Gross margin percentage remained stable, supported by revenue growth and cost optimization initiatives, and we do expect this metric to continue to improve in future quarters. Adjusted EBITDA for the third quarter of 2024 was an outflow of $0.11 million, an improvement of 93% compared to an outflow of $1.44 million in the third quarter of '23. We are very proud of having achieved this 93% improvement in our adjusted EBITDA. Our efficiency measures are having an impact. Here, we have a graphical representation of Tribe's revenue growth. Annual revenue growth is shown on the graph on the left and quarterly revenue growth is shown on the graph on the right. The first 9 months of 2024, Tribe has achieved revenue of $19.8 million compared to $14.3 million in the first 9 months of 2023, an increase of 38.9% year-over-year. In the first 9 months of '24, we've already surpassed the total revenue of $19.4 million generated in all of 2023.

We are very pleased to have already achieved record-record revenue in '24. In the quarterly revenue graph, we can see that our revenue growth has been accelerating over the last 4 quarters, primarily driven by Meritus and DMS acquisitions as well as our financial service revenues. The company continues to win contracts from its competitors and sign future real estate development projects, underscoring the strength of Tribe's market position. This success is driven by the strength of our franchise, characterized by superior service, better managed buildings and our proprietary technology, which provides a distinctive competitive advantage. Our well-recognized and trusted property management franchise has consistently proven to be a winning strategy, exemplified by our growing presence in the Greater Toronto area, which has unlocked new opportunities. That concludes my update.

I'll now turn the call back over to Joseph.

[Joseph Nakhla, executive]

Thank you, Angelo. Just to remind everyone really what we set up to do in '24. We wanted to continue to build on our monthly recurring revenue, and that's the base of our growth essentially. This is the number of homes that we manage and the amount of data we accumulate through this, it does unlock a tremendous amount of opportunities for us with services on top of that. We obviously set out to make some transformational acquisitions when we're quite pleased with the way those -- the 2 transactions we did so far in '24 have yielded us both on the profitability side, but also on the opening new markets and new services for us to offer across the country. We spoke quite a bit about our drive towards amalgamating all of our back offices and making a big push towards profitability. It's obviously illustrated here. It's been more than a 3-quarter effort to get to where we are. We are proud to say that we're really the only asset in Canada and the U.S. that has amalgamated all its back office to operate and deliver all its accounting and back-office services from one platform integrated directly with our front-end platform that delivers services to our customers. This just continues to unlock additional revenue streams for us.

And we obviously continue to invest our software platform, not only in the way it integrates directly with our back office, so our homeowners and residents and tenants can directly interface and get solutions to whatever challenges they may be facing in their condos or their rental buildings, but also, we were able to be more meaningful to their daily living by giving them products and services they actually transact with that yield them savings and yield us revenue. And I'll speak a little bit more about the health of these communities that we manage compared to others in the space as well. So just to kind of summarize some of the milestones we've hit this year. In January, obviously, we closed on the Meritus acquisition. Meritus Group was a key acquisition for us to give us condo presence in the GTA market, which we did not have before. We do work with a large number of developers in the GTA market that license our software, but we didn't have a full solution to offer them on the condo side, that's been changed. And Meritus is experiencing great growth, leveraging the muscle and the branding of Tribe that's available to us to generate leads for them.

In February, we embarked on this massive consolidation of all of our back offices, all the companies we've ever purchased. And the idea there was any customer of ours condo, rental, no matter where they are in the country, will receive identical financial package. This was a mother of an undertaken. It was an incredible amount of work. And thanks to our just dedicated team, it took a long time, but it's here, and it's yielding a significant amount of efficiencies as illustrated in our EBITDA numbers. Great revenue. In May and in June, we announced the acquisition of DMSI. We worked hand-in-hand with the private placement and life offering to fund the transaction. The DMSI transaction has been one that we have wanted to do for a long time, and we're so pleased with the way it has -- not only the team that's been added to our executive management team, but also with the footprint and the products and services. The integration is going quite well. We're pleased with the products and services that we're now able to offer on all of our platform right across the country versus just being in Ontario.

As you may know, DMSI is only an Ontario rental play, but it really opened up the door for us to start putting our name in the hat for things like student housing and opportunities like not-for-profit and governmental housing, which is a massive area that we haven't played in before. And now we have the chops to essentially offer the service across the country. It's good gross margin opportunities for us. We rebranded it. We brought it all under one umbrella. We started to take those products and services in August into the rest of our market, and we're starting to yield some revenue from that, that's going to be reflected in Q4 and Q1. And then we reported an increased amount of efficiencies, not only in our platform, meaning the number of tickets and problems that we're solving digitally in our platform for our customers, which is really yielding healthy buildings, which I'll speak about in a second here.

Just to remind everybody, we've got revenue segmentation that fit in 2 buckets. In each bucket, there's multiple revenue streams. But at a high level, as mentioned earlier, our recurring base of revenues, our fees essentially that comes from our case of condos, condo fees, and we keep a percentage or we keep a dollar per unit or per home as our recurring revenue. And then there's the world of rental where we give a percentage of the rent roll that occurs in the community. And we have a number of other products and services that we sell into these channels. And then we have the transactional revenue that's a fancy way of saying, essentially, once we have all the data and we've digitized these communities, we interface directly with the homeowners, the tenants, the condo corporations, and we just have unlimited number of products and services that we keep selling into them. And that number continues to grow.

And the idea there is to deliver products and services that leverage our group buying power, but also lower the operating cost for these communities that we manage. It's never been more important essentially since our birth as an organization for us to be able to lower the operating expenditure for these communities that we manage to let them leverage the number of homes that we manage, but also make sure that the inflation beat that everybody has taken everywhere else is not necessarily reflected on their monthly maintenance fees, which is arguably one of the biggest ticket items that they have in their monthly spend. And you'll see here just a quick view on the breakdown of these revenues. You'll see on the left side, this is our MRR per community. A community is a building or essentially a contract that we have with either rental building or condo. And you'll see a -- like historically, we've always had an increase. And that increase is just a function of us delivering better service, attracting bigger communities and adding more communities to our ecosystem.

And obviously, you see the big lift there with us acquiring DMSI, which tend to do in the pure rental tends to be higher revenue per customer. So that's reflected here. We're still on the right trajectory in terms of increasing that number for all of our contracts. And you'll also see still a significant increase in our monthly recurring revenue per home quarter-over-quarter. And you also see a significant increase in our transactional revenue. Again, transactional is in-app purchases, products and services that we offer to the community to the condo corporation or to the homeowner and the resident themselves. So the value to the customer, I don't usually speak much about that, but I think the data now is starting to -- due to our size and our ability to benchmark against national footprint, it's important for everyone to not risk, realize that our buildings are generating more revenue for us, our homes are generating more revenue for us. But we're actually lowering and saving them a significant amount of capital.

Here are some examples of that is in our communities that we manage compared to benchmarks, similar communities on the national footprint, 150% reduction in building admin costs. That's heavily weighted on our application and its products and services. So admin cost for communities, for buildings is actually a big line item in their budget simply because it's photo copy and cost and papers going back and forth on permitting and I can go on. It's a long list of things that we really remove a significant amount of that due to the fact that we've got the features that can actually do a lot of the back office maneuvering around this and saving them a lot of cost. 40% reduction in energy cost per square foot. That's mainly a function of amount of education and amount of data and information that we put in front of the communities that we manage, a 10% reduction in client insurance costs. That's a massive reduction when you consider how much premiums are. And the main reason behind that is buildings that we manage are better managed, A, and B, we have a lot more history that we can put in front of the underwriters, and there's a significant amount of tools that we have that illustrate that this building will have less likelihood of having issues for the underwriters. So they actually tend to like to insure our buildings.

And I don't know if you know this, but a lot of buildings in Canada right now are having a heck of a time just even finding an underwriter regardless of the price. So this is becoming more and more of an issue that we're solving for a lot of the condo corporations that work with us. There's a massive reduction in routine queries for councils and boards. And again, councils and boards that sit on these condo corporations, they're not getting paid to do this. They're all volunteers. So the ones that come and actually choose our services due to the kind of intelligent vast array of back-office tools that we have, we actually take a significant amount of the communication and the reasons to meet and decision-making away from their hands. And then we have a 40% above industry average NPS. That's a number we're constantly looking to improve on, and it's not going to surprise anybody that NPS scores in property management are not very high. So for us to be 40% higher than the average NPS, it tells you a lot about -- for those that don't know, NPS is Net Promoter Score, which is really how likely your customers are to recommend you to people that they care about as a good service provider, and we're right on top there.

Just visually here, it illustrates to you some of those metrics I referenced based on the energy, insurance, admin and revenue from reserve funds as well as how much revenue we generate for our partners. And the idea there is due to our size now, we've negotiated with the big banks to do 2 things. One is really lower, if not eliminate all banking fees for our condo corporations unheard of in the space. And in addition to that, we generate more per square foot for them on the reserve funds than anybody else in the space, even on their operating capital. And that's a function of size and the commitment that we have to keep adding more and more of our customers to those banking relationships as well. Again, its path to profitability. We've spoken quite a bit about it. A significant amount of that is just a function of us kind of backfilling into our size. We want to be national. We are the only company in Canada that's essentially doing all the different verticalization of solutions we have. We're not only tech-backed solutions, but also the most comprehensive solution provider for all types of residential living in Canada.

And the way we see it is if you have a home whatever that looks like, Tribe is there to provide you support and give you services, whether it's on our platform or to your condo corporation which you're building. So the function of improving our adjusted EBITDA is really a function of process improvements, cost optimization, especially now that we have the national footprint. There's been a significant headcount reduction. And that's really the idea there is as our technology matures more and more and our processes take the next step in terms of evolution, in terms of really helping these communities get better managed, what we've been able to do is really do more with less, the technology that some of the heavy lifting that's required for these communities to be managed appropriately. And obviously, the acquisitions of DMSI and Meritus have helped with the adjusted EBITDA improvement, and we're actually now starting to unlock even more optimization within the operation of these communities as well.

So what is our outlook for '25? Really, the idea is now that we're turning the important corner of being EBITDA positive, our next step here is to be on a positive cash flow generating the big opportunity that we have to really backfill into further accounts into these markets that we operate in. We still think that we have a massive opportunity on the M&A side. We're still very active. If anything, our brand and our name and for those that have sold to us, the Ben Raven fans of the experience they have had with us in terms of us stabilizing the businesses, growing them both on the EBITDA side and the revenue side and actually giving those companies even a bigger opportunity to expand their footprint in the markets they play in. That's boding really well for more and more companies to want to be added to our portfolio. We're just scratching the surface, and you've seen that in the growth, even though it's been high growth in the data play, we know so much over the communities that we are managing that isn't just a function of just having data, it's a function of having information about what these communities need to be better managed and be also future-proof for what tomorrow brings.

So we continue to bring more and more products and services, both on the engineering side, on the Internet of Things and smart building technology things. But everything we bring into the communities is really driven to lower their operating cost or God forbid, prevent a massive cost that maybe may show up in a year or 2, really just future-proof in these communities. We're obviously entering '25 with what I believe is an improving housing market environment. It's still not perfect, nowhere close. We're somewhat agnostic really to this side of it. Of course, we want to see a healthy market. Our definition of that is it's not necessarily that a significant amount of homes are being turned over and the real estate market is really -- transactions are high. That's not really a big driver for us. What's really important for us is to watch for costs associated with management of these communities. We want to see a little bit of stabilization there. We're starting to see that from a lot of our suppliers.

We also want to see a lot of the buildings that started construction to complete on time and hopefully within the neighborhood of the budget they assess. So there's no major delays. That's important for us. That helps us as well. And then finally, we continue to see a much, much stronger rent market. We're just completely underserved as it pertains to the number of homes, even though with the decrease of the number of migrants coming in, we're still significantly underprepared as a country for the number of rental homes that are needed for the needs in the market. So we're going to still continue to see an increase in those rental rates. Some are restricted, some aren't. Brand-new construction, obviously, will start at a much higher per square foot NOI, and we'll see where that market takes us. But '25 bodes for a great, great year for Tribe. Thank you very much.

These are my closing my final remarks, I'm happy to take some questions.

[Operator]

[Operator Instructions] The first question comes from Suthan Sukumar of Stifel.

[Suthan Sukumar, analyst]

Congrats on a good quarter. For my first question, I wanted to touch on the gross margin improvement in the quarter. What are some of the drivers behind what appears to be good structural improvement overall in your gross margin profile?

[Joseph Nakhla, executive]

I'm happy to jump on that one, and Angelo can backfill. What isn't illustrated here is when you're going through a significant amount of cost reductions specific to our HR, for those that don't know our gross margins that we share with everybody here within the cost of goods, we actually have a significant amount of operating people in there. So when you go through the reduction of the force that we experienced in that quarter and those 2 quarters essentially, you'll actually have a lot of onetime costs associated with that in the cost of goods there that you would not naturally have. So actually, it's deceiving when you look at this gross margin being similar to what it was the quarter before. It's actually better and we expect it to get much better because it does have those onetime costs associated with the reductions that we've done.

[Suthan Sukumar, analyst]

Can you speak to some of the factors underlying the strength in MRR and transactional revenues this quarter compared to historical trends?

[Joseph Nakhla, executive]

Well, on the MRR side, we just continue both on the organic side, a lot of contracts that we closed and we started to realize, so buildings that were supposed to be finished in Q1, Q2 maybe got pushed to Q3. So we had some backlog that needed to come up to the market. Obviously, the addition of DMSI, which is a very strong recurring model has helped our quarter. On the services side, that's mostly unique to Tribe. We continue to leverage our data stack. And I think -- you know I've been saying it for a long time, Suthan, is the big opportunity for this company is not only just in a strong MRR base and being able to manage these communities, but really, once you accumulate this data -- we manage -- the number is probably north of $400 million or $450 million on behalf of our communities in different stages right through the year. And that amount of money is being spent is going to different service providers to solve different problems. When you accumulate the amount of data we have, you start finding opportunities to not only help the building lower cost or spend less, but also generate more revenue.

I mean, I don't need to tell you, but massive endeavor in the country right now that started in '24, but really is going to take hold in '25 around electricity consumption, electric vehicles, preparedness for the future. The government or the Real Estate Act essentially thrown this grenade on everybody and said, "Hey, everybody that manages a condo corporation as a condo Board members, you have to have a solution for anybody that needs an electric vehicle charger in their building.†And they just left it at that. And a company like us is so well positioned because we can bring products and services in there that are monetizable, but also improves the sustainability of the building and also makes the building more desirable. So owners do want these types of solutions in the market. That's just a basic example. Financial services is another one. Lending is another one. I can go on. There's a long list that we're just scratching the surface in terms of being able to sell more products and services and offer them in these communities that will improve the gross margin.

[Suthan Sukumar, analyst]

And as you guys talk about organic growth, outlook for 2025. Can you talk about how much of that growth do you expect to be driven organically? How much do you expect that growth to be driven by competitive displacements on the condo side versus, call it, new building completions? And how much of that growth is also going to be fueled by some of the strength you've been talking about on the rental side of the business? Just curious about the moving pieces there that you're excited about for next year.

[Joseph Nakhla, executive]

Listen, I'm excited about all of it. New construction historically has been somewhere in the 30% of our new buildings that are coming on board. 70% tends to be displacement of traditional property management companies, buildings moving from traditional model to our model. And then obviously, on the rental side, we didn't have the national footprint that we currently have, which we're going to be muscling up pretty quickly here, especially with the addition of DMS within our midst. So what am I most excited about? I think we continue -- we have not spoken enough to the street, for our customer base about how their buildings are better managed under us than buildings that are like them, that are next to them essentially. And you'll see us make a bigger push on that. I mean the data just doesn't lie. We almost have 1.5 years’ worth of data now that illustrate all the items that I was sharing. So I think watch us on the marketing side make a big push to kind of make a basic statement saying, “Your building will be better managed with us, your costs are going to be lower with us.†So that's one.

The other area I'm excited about is actually on the rental side, now that we have a big footprint, watch us be engaged in governmental housing, which is an area that we did not play before, student housing, which I think is a massive problem that the country is facing that needs some solutions. And those kind of muscles through DMSI’s acquisition are actually available for us to deploy right across the country, inclusive of another division that we acquired within DMSI that delivers engineering project management services, which is a fancy way of saying all the buildings that we manage, anything older than 10 years needs a plan for how to stay future-proof and stay healthy. And we have a division now that does all the engineering work and recommendations for these communities. That's an area that we haven't seen a lot of revenue from historically, but we anticipate to start seeing revenue from next year.

[Suthan Sukumar, analyst]

And then the last one for me on DMSI. You've been talking about some success from a cross-sell perspective. Expand on where you're seeing traction and what's been kind of low-hanging fruit? And what do you see the more meaningful opportunity? I guess, what you talked about on the engineering project services side, that sounds like a mid- to long-term opportunity. But yes, just curious what are some of those other big opportunities on the horizon?

[Joseph Nakhla, executive]

Well, immediately, DMSI had some common customers with us, but it also had a long list of customers that we did not work with and vice versa. Tribe had a list of REITs and family offices that do rental that we did not work with. So immediately, cross-selling across. So if DMSI works with a customer that has used them in the Ontario market, but they also have presence in Alberta or in British Columbia, and DMSI didn't have the footprint there, we're going in and saying, “Look, we can actually now support you with the exact same service that you're accustomed to right across the country.†And vice versa with Tribe’s customers as well. So that's one of the most immediate opportunities, and that's already paying dividend. And the other thing is DMSI had expertise in markets and verticals in housing that we did not have.

I mentioned student housing and governmental housing, which I think these are the 2 areas that I think we're seeing the most benefits from. We just put a significant proposal here in British Columbia for government housing that was really built on the experience that we've accumulated through DMSI. And then finally, despite the fact that DMSI's experience on project management has been very much in the rental space, we think all -- I mean, buildings or buildings to be managed, we think all the data expertise that they've accumulated in how buildings are managed and what kind of capital expenditure they require, we can pull that and actually make it available in a micro way for all the communities that we manage on the condo side. And we're piloting that as we speak. So I wouldn't call it medium term. I would still call it more of Q1, Q2 results is what I'm hoping to see.

[Operator]

The next question is from Kiran Sritharan of Eight Capital.

[Kiran Sritharan, analyst]

Congratulations on the quarter. I wanted to start on profitability as well. Can you give us an update on like what's left with the different efficiency initiatives? And how do you maybe expect the positive EBITDA to progress over the next few years? And maybe from a modeling perspective, is it more stepwise growth or like front-end loaded with the integrations? Or would you just say it's growing scale over the OpEx run rate?

[Angelo Bartolini, executive]

I'll jump in here. Look, we just had a pretty significant quarter how you saw a pretty massive improvement sequentially. We continued our efficiency program throughout the quarter. So there is still more to come in terms of just our operating cost model. So we're going to see another sequential improvement, obviously, in Q4. And I have much stronger conviction than I did last quarter when we spoke, and I said we were going to exit the year EBITDA positive and then start to see positive cash flow from operating activities in the early part of 2025, and I'm still holding to that. I don't want to get ahead of our skis at the moment. I'm feeling very good about things.

But I do think that you are going to continue to see improvement in each of the following quarters. I would say, at some point, we will have hit in terms of the benefits from the efficiency programs will be embedded into our cost structure. And then what you're going to start to see is just the leverage of scale. And a lot of the opportunities that Joseph talked about in terms of our organic revenue growth opportunities are just going to continue to add to our profitability and our bottom line and cash flows for that matter. So I think the way I would look at it and suggest that it's just quarter-over-quarter steady progression on each of our top and bottom lines.

[Kiran Sritharan, analyst]

I'll probably touch on what you just ended with there, and that's the cash generation you're expecting for '25. Just curious how we would track versus that positive EBITDA performance? And like how does the conversion rate work? What are your thoughts there?

[Angelo Bartolini, executive]

Well, I think for the moment, we're getting to EBITDA breakeven not completely positive on the cash flow from operating activities. Again, just to reiterate that, that we do plan to achieve that in the early part of '25. And so then that's going to start contributing towards positive cash flows, which can be redeployed in reducing our liabilities in terms of bank debt and so on. So that's how we're modeling it at this point in time. In the meantime, I'll just add this point as well. We're working our working capital as well. We're very focused on improving working capital, and we're going to continue to do that. So that's going to continue to be a source for us as well.

[Kiran Sritharan, analyst]

And then on the transaction revenues, a couple of quarters here of above $1 million in contribution. Just given the expanded portfolio, like does the reserve fund and ancillary revenues stay high? Or are there seasonal swings here to be aware of?

[Joseph Nakhla, executive]

The operating capital that we manage on behalf of our communities that is not really seasonal, that runs right through these buildings get managed, money is in and out. CRF obviously depends on the capital expenditure there. So on the financial services side of the business, that's pretty steady, just an interest rate kind of relevancy. On the case of additional transactions, there are some seasonality associated with brand-new communities. Most people don't, for example, move in and out of homes in the rental side in December. So as an example, that's probably not a popular time for people to make moves in and out. If you're doing student housing, there's also seasonality associated with the quarterly results. These are not big dollars for us, but the lease fees go into these recurring transaction revenue opportunities.

And then finally, you'll see actually a bit of a more of a ramp-up in our engineering products and services, which is what I call data-driven reports that we generate for the communities to be able to file to the government based on the requests that are made. You'll see a lot of this revenue come into next year. So when I say it's not seasonal, it's just simply because the overwhelm majority of buildings in Canada need to hit those reports and prepare those reports over the next 2 years to be compliant, and we have to help them get that. And that's another revenue stream that comes through our platform.

[Kiran Sritharan, analyst]

And then final one for me. I just wanted an update on the inorganic pipe. You called that a priority in 2025. Just curious what opportunities you're evaluating here? And from a target perspective, are you looking at more smaller or maybe as sizable as DMSI?

[Joseph Nakhla, executive]

Probably not as fully as sizable as DMSI, but maybe knocking on that size. We like that size. There are some interesting tuck-ins that strengthen our presence in a specific market. There's 1 or 2 that -- we really, really like the underserved market of small condos in Canada. These are condos, 50, 60 units or less that nobody uses that can really leverage a technology platform like ours with a vendor list that's integrated in our back office like we have. And they really just don't get any service right now. Watch us make moves into that space, we service that market. It's very small, but we think there's some gross margin that can be driven there with the technology doing heavy lifting. So watch us make moves into that space. I think that's a no-brainer. I also really, really like the one-off rental market. This is us being in a condo corporation, managing a big tower and a number of the homeowners are renting those units out. The division of ours is small but continues to grow. We'll probably put a little bit more emphasis. It's a simple solution. We have the technology; we have the tools and we have the presence in the market to actually keep increasing our market share there. So that's another area you're going to see us be active in.

[Operator]

The next question is from Owen McCleery of Haywood Securities.

[Owen McCleery, analyst]

So congrats first on the great quarter with the nice overall growth. So I just have a couple of questions regarding organic growth. So stripping out the benefits from the acquisition, could you remind us what the organic growth was in the quarter? And just as a follow-up, how are you thinking about the combined organic growth going forward following your recent M&A?

[Joseph Nakhla, executive]

So rule of thumb for us when we put our budgets and we look backwards on our year, we tend to aim for between 10% to 15% organic growth annually. This year was an interesting year. One of the untold stories in our revenue reporting is the fact that we actually essentially divested of a number of buildings. So we have the tools to figure out if we are managing communities that are really low on the gross margin, they may be better off going to a different service provider just simply because the gross margins just don't yield us that number. So I've been speaking about that in the last couple of quarters. We continue to do that.

Despite the fact that you've seen an increase in our revenue, we actually, in some cases, in the last couple of quarters, we've actually let go of buildings. We find a good home for them. We help with the transition. We give them access to our platform longer than operationally needed or obligated by us just to simply have them land in good hands. But the truth of the matter is there's going to be a very minimum gross margin that we need to be playing with as an organization, and we need these communities to adopt the technology and the solutions that we have. So that would be the rule of thumb. I would look annually for about 10% to 15% within in that range, somewhere there.

[Owen McCleery, analyst]

And then secondly, just going back to the fact that it looks like you're going to have an inflection year for adjusted EBITDA. What kind of margins are you thinking of targeting on the EBITDA front next year?

[Joseph Nakhla, executive]

Just generally, we think a fully baked model of ours, whereby we are managing the building. It's running on all of our platform. It's fully digitized and operating, and we have a lot of those mature buildings. We see an EBITDA line of north of 15%. And that's a function of a fully baked solution. You got to remember a lot of ancillary services, in-app purchases, products and services like the financial services and data-driven solutions are really high-margin products, and we're just scratching the surface on that. So as we increase that line item in these communities, and it does take time once you collect the data, you got to get the information out of the data and then actually offer the solutions that make sense, we can see that number. I mean, if you want to go a little bit longer term, '26, '27, I see a 20-plus percent EBITDA number for us, fully baked solution.

[Angelo Bartolini, executive]

I'd just quickly just add like just for next year, look, we're ramping up. We're turning the corner. So next year is going to achieve a reasonable EBITDA margin. We're not putting any guidance out there. But longer term, as Joseph has said, we feel very comfortable with those targets. We just got to get there. And next year, we are just turning the EBITDA corner here from negative to positive. So it's going to be a climb up. But it will be reasonable next year. And then going forward, it's going to continue to grow.

[Operator]

There are no further questions.

I'll now pass the call back to Joseph Nakhla for closing remarks.

[Joseph Nakhla, executive]

Thank you all for attending and taking interest in our company. I've never been more excited about our organization. It's just incredible to see our dream to build a national company that's delivering service that's essential to many, many of the people that live in our communities shape the way it is. This concept that you can be a tech first property management company in the industry that many will argue has not really gone into in the second half of the 20th century, not alone in the 21st century. I'm glad to see us leading into that space. I'm glad to see a tremendous amount of hunger for the space. I want to wish you all great holidays and a massive thank you to our staff that just worked incredibly hard this year and more in delivering excellent service for our customers. At end of the day, there's really a few things that are more important than one's home, and we love the fact that many of those customers trust us for that. So have a great holidays, and we'll see you, hopefully, for a fantastic Q4 results.