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Edited Transcript of RP earnings conference call or presentation 1-Nov-18 9:00pm GMT

Q3 2018 RealPage Inc Earnings Call

CARROLLTON Nov 13, 2018 (Thomson StreetEvents) -- Edited Transcript of RealPage Inc earnings conference call or presentation Thursday, November 1, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Rhett Butler

RealPage, Inc. - IR

* Stephen T. Winn

RealPage, Inc. - Chairman, CEO & President

* W. Bryan Hill

RealPage, Inc. - Executive VP, CFO & Treasurer

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Conference Call Participants

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* Brian Lee Essex

Morgan Stanley, Research Division - Equity Analyst

* John Robert Campbell

Stephens Inc., Research Division - MD

* Matthew George Hedberg

RBC Capital Markets, LLC, Research Division - Analyst

* Monika Garg

KeyBanc Capital Markets Inc., Research Division - Research Analyst

* Stephen Hardy Sheldon

William Blair & Company L.L.C., Research Division - Analyst

* Sterling Auty

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the RealPage Third Quarter 2018 Results Conference Call and Webcast. (Operator Instructions) Please note, today's event is being recorded. And with that, I'd like to turn the conference over to Mr. Rhett Butler, Vice President of Investor Relations. Please go ahead.

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Rhett Butler, RealPage, Inc. - IR [2]

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Thank you, and welcome to the RealPage

(technical difficulty)

Good afternoon, and welcome to the RealPage financial results conference call for the third quarter ended September 30, 2018. With me on the call today is Steve Winn, our Chairman and Chief Executive Officer; and Bryan Hill, our Chief Financial Officer and Treasurer.

In our remarks today, we will include statements that are considered forward-looking within the meaning of the federal securities laws. In addition, management may make additional forward-looking statements in response to your questions.

Forward-looking statements are based on management's current knowledge and expectations as of today, November 1, 2018, and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties is contained in our annual report on Form 10-K previously filed with the SEC on March 1, 2018, and our quarterly report on Form 10-Q previously filed with the SEC on August 6, 2018, as well as our earnings release and materials distributed today. RealPage undertakes no obligation to update any forward-looking statement, except as required by law.

Finally, please note that on today's call, we may use or discuss non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in today's earnings press release. In addition, please reference the explanation of non-GAAP Financial Measures section of today's earnings press release for more information.

With that, I will hand the call over to Steve. (technical difficulty)

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [3]

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Operator, we're getting feedback on this call. Are you there?

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Operator [4]

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Yes, I'm here. It sounds like there's an echo within your room.

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [5]

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There's no echo in the room. We're getting an actual playback of Rhett's discussion. It's about a minute delayed.

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Operator [6]

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All right. Hold on one second. Please remain on the line. We're going to fix this and we'll get right back with you, so please remain on the line. Pardon me, we have rejoined the main speaker line.

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [7]

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All right. Thanks, Rhett. I hope everybody heard that. Good afternoon. Thank you for joining our third quarter conference call. Q3 was another great quarter with total non-GAAP revenue growing 33% and adjusted EBITDA growing 48%, representing margin expansion of 270 basis points. Organic revenue growth accelerated to 15% compared to the prior year period, and bookings continue to show strong momentum, growing faster than the rate of total revenue expansion. Our uninstalled backlog is at its highest level ever, and our implementation teams are working feverishly to bring the backlog down.

I couldn't be happier with the results our team have delivered this quarter, which reinforce our belief that the company will hit $1 billion of revenue about a year earlier than planned in 2019 and achieve our EBITDA target of $300 million not far behind some time in 2020. I would also like to stress that during the quarter, we continued to invest in innovation intended to drive organic revenue growth, and simplification intended to expand margins. We are confident that existing markets are underpenetrated and possess a strong appetite for our platform and have, therefore, established a new goal of $1.5 billion in revenue by the year 2022, representing average annual revenue growth of about 15%.

We're also confident that our scale and continued efforts to simplify our business processes will enable us to expand margins and there have -- therefore, have established a new goal of $500 million of adjusted EBITDA by the year 2022, representing approximately 200 basis points of margin expansion per year.

I'd like to discuss some of the differentiators that will enable us to sustain our growth engine that we've created. Our first advantage is scale. We believe we are the largest SaaS platform in the rental housing real estate software market with 16.1 million units and a sales team of 475 teammates. Our sales force productivity accelerated to -- by 14% in the third quarter, hitting the highest booking numbers ever recorded by RealPage, up over 37% compared to last year. We use the sales force to expand units and cross-sell all of our products and services into our installed base.

Our second strategic differentiator is data. Simply put, we have more of it than anyone else, and we figured out how to create immense value from it. We utilize our data to become one of the first truly statistical pricing platforms for rental housing, delivering a proven 2% to 7% revenue lift over market. Our acquisition of LRO extended our lead in the science of pricing and added more data to improve our predictive forecasting models.

With the help of our rental payment database, we've calibrated our screening platform to be more accurate than FICO at predicting a prospect's ability to pay rent in a timely manner. We will soon introduce an AI screening algorithm that is expected to generate a 50% reduction in delinquency rates because it analyzes much more data to predict default risk.

In addition, we've utilized machine learning in concert with our data science team to retool our screening algorithms to dramatically improve our criminal matching capabilities, reducing false positives to under 0.2%, with no impact on false negatives.

We launched Lead Scoring as part of our Leasing and Marketing platform, which identifies high-valued leads and prioritize them based on the most likely to convert to a lease. We've released benchmarking of performance, with broad adoption across all facets of financial performance. Benchmarking requires a massive amount of data from tens of thousands of properties. We've utilized machine learning to normalize and benchmark amenities to give guidance on pricing as well as rehab decisions affecting value creation for real estate asset acquisitions and dispositions.

We built an empirical property classification system that use rent per square foot versus market distribution as a proxy for quality. Machine learning has allowed us to normalize our clients' operating expenses so they can, for the first time, compare their expense structure by category against a benchmark of comparable peers and gain an advantage when revenue growth declines.

Our data focus was further highlighted by our recent acquisition of Rentlytics. Rentlytics expands our Business Intelligence and Performance Analytics platform by nearly 1 million units. We expect to combine real-time data from the Rentlytics platform with our existing Business Intelligence and data analytics platform and offer the industry an even more powerful, high precision tool to measure financial and operating performance. It is our focus and expertise on data that has also enabled institutional demand for our solutions.

For example, we have recently significantly expanded our partnership with Freddie Mac, as they will be utilizing our data-driven solutions to provide more transparency into their portfolio. In addition, TA Realty, with $10 billion of real estate assets, recently launched our Business Intelligence and Performance Analytics platform and some of our most data-intensive solutions. They stated that our BI and PA platforms significantly enhanced their ability to dig deeper into their assets and help drive real returns at the property level and ensure their teams are working in concert.

Our scale and our data advantage, competing in current markets with current products and services, gives us confidence in our 2022 goals. However, we're investing over $100 million per year in product development. This demonstrates our commitment to bringing to market innovative and disruptive technology which significantly overshadows the investment commitment from our competitors. We are hopeful investments in several areas will enable us to outperform our 2022 goals. I'll cover just a few of them here.

First, AI offers an extraordinary promise to change the way work is performed by our clients. We are building tools that will not only provide accurate forecasts of the future, but will help workers -- will tell workers what actions they should take and in what order they should take them to improve their performance. Of course, this is simply another use of Big Data, and we call this prescriptive analytics. We believe our platform is powerful in other segments of real estate such as HOA, commercial, investment management, self-storage and many international markets. Our strong balance sheet gives us the flexibility to enter or expand in these markets through acquisitions. Our capital allocation discipline translates these investment decisions into superior returns for our shareholders.

We believe our data gives us the ability to provide more transparency to the transactional side of real estate so that investors, lenders, advisers, brokers and owner-operators can make more informed decisions about value at the point of sale. We also believe there are megatrends going on in the real estate market that bode well for RealPage.

First, the percentage of leases generated through direct channels is increasing, while the percentage of leases generated through indirect channels is declining. This plays into our Go Direct marketing strategy, which was recently strengthened through the acquisition of LeaseLabs.

Second, apartments are becoming a larger source of supply for short-term rentals. KigoHospitality is well positioned to capitalize on this megatrend.

And finally, perhaps most importantly, we believe that we can continue to broker transactions that occur between residents that live in the apartments that use our platform and everyone else in the rental real estate ecosystem. Our payments platform is the gateway in which we will monetize these opportunities, which is now processing over $57 billion in annual transaction volume. The ClickPay acquisition strengthened our position in payments and continues to perform above expectations.

In summary, we believe our current trajectory and financial model will enable us to achieve our 2022 goal. However, there are major trends in real estate that we intend to exploit and if successful, could accelerate the growth trajectory of our business.

Moving on to macroeconomic trends. According to our data, occupancy for the third quarter was 95.8%, up from 95.3% in the third quarter of last year. Annual growth registered 3% compared to 2.7% annual growth in Q3 of last year.

According to our Chief Economist, Greg Willett, momentum in the apartment market's performance during the third quarter slightly surpassed our expectations. However, there doesn't seem to be a pronounced shift in the big picture story. We are about to move into a period of seasonally slow apartment leasing that comes with the cold weather months. Demand is expected to trail completions just ahead, making it tough for rent growth pace to gain additional traction.

Building in the U.S. apartment sector remains aggressive. Market rate apartment completions have totaled some 300,000 to 325,000 units annually since late 2016 and ongoing construction points to that volume of deliveries continuing at least through the end of 2019. With so much high-end new product finishing in the near term, the leasing environment is expected to be competitive in the luxury apartment niche. At the same time, product shortages remain for moderately priced rental housing. It's still tough to find available apartments at the middle- to low-end price points across most neighborhoods in the U.S.

In summary, this has been a great quarter driven by past investments. We're confident we can continue to execute at historical levels with opportunities to accelerate. I appreciate the support we've received from our teammates, clients and shareholders.

I'll now hand the call over to Bryan.

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [8]

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Thanks, Steve, and good afternoon, everyone. Today, I'll review operational highlights for the quarter as well as our financial performance. During Q3, our focus on financial discipline helped drive strong and accelerating financial performance.

Total non-GAAP revenue grew 33% and adjusted EBITDA grew 48%, representing margin expansion of 270 basis points. In addition, our new sales bookings growth has exceeded total revenue growth levels and represented strong contribution from each product family group. The third quarter was a continuation of North Star themes that guide our execution: innovation and simplification. Past investments, combined with our go-to-market effectiveness drives 15% organic revenue growth for the quarter. Our focus to scale enabled us to achieve adjusted EBITDA margin expansion of 270 basis points while continuing to invest in initiatives designed to drive scale beyond 2020.

From a capital perspective, we relentlessly focus on opportunities to generate the highest risk-adjusted returns for our shareholders. With this in mind, we recently acquired Rentlytics, which strengthens our repository of data while extending our Business Intelligence and benchmarking capabilities.

For our 2018 acquisition cohort, we expect the combined purchase price valuation to represent 10 to 12x adjusted EBITDA on a run rate basis by mid-2020. In addition, we still expect to exit 2018 with a combined purchase price valuation of 10x adjusted EBITDA for our 2017 acquisition cohort, representing a fantastic return on capital.

Consistent with our capital allocation objectives, we announced today our board authorized a $100 million share repurchase program. The Board's decision to authorize the repurchase of our common stock reflects confidence in the long-term outlook of the business.

Now for quarterly operational performance. Non-GAAP on-demand revenue grew 33% compared to the third quarter last year. Units grew 33% compared to the prior year quarter, primarily due to new units contributed from new acquisitions. Organic unit growth in the quarter was well above recent trends, growing 7% compared to the third quarter last year.

Revenue per unit was nearly $62 for our rental clients, just above $9 for our HOA clients and just over $55 for our total company annual client value. Our total company ACV was nearly $887 million, representing 25% total growth. The primary drivers of total on-demand revenue performance were continued consistent growth from Property Management of 12%; continued strong growth from Resident Services of 33%; significant growth from Asset Optimization at 59%; while Leasing and Marketing grew 44% compared to the third quarter of last year.

Property Management growth was driven by accelerating growth in our spend management and OneSite property management solutions, combined with a slight benefit from the acquisition of On-Site Manager. Resident Services benefited from strong growth from our payments, renters insurance and resident utility management solutions and the ClickPay acquisition, which contributed just over $9 million of revenue during the quarter. Organic revenue growth for this product family was 23%.

Leasing and Marketing benefited primarily from the acquisition of On-Site Manager, LeaseLabs and the intelligent lead management component of the LRO acquisition and our organic lead-generation solutions. Asset Optimization continues to be driven by the acquisition of LRO as well as our YieldStar revenue management and Business Intelligence platforms. Organic growth for this product family continues to be in the mid-teens. However, we are confident in our ability to accelerate organic growth over the long term given our investments and significant year-to-date new sales bookings growth of over 60%, a great leading indicator of what is to come for the Asset Optimization product family group.

From a profitability perspective, we achieved $59.1 million of adjusted EBITDA; a margin of 26.2%, reflecting 270 basis points of margin expansion. This performance is impressive in light of continued innovation investments across our platform.

Gross margin was 64%, excluding depreciation, amortization of product technologies and stock-based compensation. This performance was accretive to margin expansion by over 30 basis points. Gross margin expansion was driven primarily by efficiencies achieved in our core business, partially offset by incremental costs related to recent acquisitions. Our 2018 acquisitions are expected to contribute more favorably to gross margin as we scale these operations.

Total operating expense on a non-GAAP basis for the quarter was just over 39% of revenue. As we look at the components, product development expense as a percent of revenue was 12%, essentially flat compared to the prior year period. We expect full year product development expense to be dilutive to adjusted EBITDA margin expansion, underscoring our investments in innovation while still delivering over 200 basis points of adjusted EBITDA margin expansion during 2018.

Sales and marketing expense as a percent of revenue was 17%, declining over 200 basis points compared to the prior year. The leverage was a result of the scale we have built in our sales and marketing engine and lower sales commission resulting from the adoption of ASC 606. Including acquisitions, we added 55 team members compared to the prior year period while driving 14% higher sales force productivity per direct rep.

General and administrative expense as a percent of revenue was just over 10%, down 100 basis points compared to last year. Leverage was driven by scale across our administrative functions, partially offset by incremental costs from acquisitions and settled litigation.

Moving to cash flow performance. During the quarter and for the year, we have generated $44 million and $141 million of operating cash flow, respectively. This excludes a $6 million year-to-date reduction in restricted cash. Capital expenditures for the year are over $37 million, representing 5.8% of revenue.

We exited the quarter with $653 million in debt when adjusted for the issued value of our convertible notes. This represents debt-to-pro-forma EBITDA leverage of 3x.

Now moving to guidance. For the fourth quarter, we expect non-GAAP revenue of $227.5 million to $230.5 million. Adjusted EBITDA is expected to be $59.3 million to $60.8 million. Non-GAAP diluted earnings per share is expected to be $0.37 to $0.38. This results in the following full year guidance: Non-GAAP revenue of $870.8 million to $873.8 million; adjusted EBITDA of $229.6 million to $231-point million (sic) [$231.1 million] ; and finally, non-GAAP diluted earnings per share of $148 to $150.

Now before I open up the call for questions, I have some additional news on a decision I have made. After nearly 12 fantastic years at RealPage, I've decided to take a pause in my career to spend more time with my family and recharge. As much as I love my job, my family will always come first. I'm not going anywhere for a few months, so I'll be at RealPage working with Steve and the team as long as it takes to complete a smooth transition, probably through the end of February 2019. We intend to begin a search considering both internal and external candidates. As I turn the call to Q&A, Steve and I will only take business-related questions.

So let's take some questions on this fantastic quarter and RealPage's bright future. Operator, I'd like to open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And today's first question will be from John Campbell with Stephens Incorporated.

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John Robert Campbell, Stephens Inc., Research Division - MD [2]

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Bryan, congrats on a great run. You guys have achieved a lot along the way, and look forward to spending some time with you before you exit.

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [3]

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Now that sounds good, John. I appreciate it.

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John Robert Campbell, Stephens Inc., Research Division - MD [4]

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Absolutely. On the 2022 targets, can you guys walk back through me what the assumptions are as far as the mix of revenue growth between acquired and organic? And then I know the margin phasing, that probably is going to change based on your priorities. But as best you can, Bryan, if you can maybe just talk about the margin lift. Is that going to be smooth, kind of consistent lift every year, or is that kind of back-end loaded? Anything you can provide there?

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [5]

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Yes, I'll provide some of the underlying thoughts that we have on the 2022 guide. So from a top line perspective, to achieve the $1.5 billion, we're expecting close to 15% total revenue growth. We don't expect the profile to change from the guide that we provided back in early 2016. So we're still confident that 10% to 12% organic growth is the underlying assumption. We feel that given the market opportunity and recent trends would lead us to believe that there could be some acceleration that could occur in organic growth, but our thoughts are still the 10% to 12% range, which would leave inorganic growth of still in that 3% range. So we haven't really backed off from our thoughts from 2016, and the market opportunity just continues to accelerate in our view. From a margin perspective, the guide would imply 150 to 200 basis points of margin expansion a year. We feel that gross margin, there's still some room left, albeit revenue mix can impact gross margin from quarter-to-quarter and year-to-year, but our thoughts are continued 50 basis points of margin expansion on through the 2022 time period, which would leave approximately 150 basis points or a little bit less than 150 basis points of expansion coming through OpEx. And within OpEx, we have a lot of opportunity to continue to scale the business. We're thinking that G&A and sales and marketing is where we'll see most of the leverage, however, much of that will be dictated by the speed and the level in which that we continue to invest in innovation.

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John Robert Campbell, Stephens Inc., Research Division - MD [6]

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Okay, and then any -- that's really good guidance. And any particular kind of swing in the mix of revenue as you see it today?

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [7]

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No. Really, all of our product family groups continue to perform well. The Property Management product family group, where we're still seeing between 10% and 12% growth, that's really being fueled by our ability to just to continue to add new units. I mean, I'm surprised. If you look at one of the positive surprises in the year has been just the new organic units that we've been able to add. And many of those come through the Property Management product family group initially, and then we cross-sell and drive RPU, but we would expect that to continue. Resident Services is an area where, going forward and even beyond 2022, a significant opportunity for RealPage that, quite honestly, can be disruptive to this vertical is just continuing to monetize the resident, and monetize more transactions occurring from the resident within the Property Management companies and the owners as well as vendors. So there's lots of opportunity for, Steve and I talk about that on many occasions, and we continue to believe that, that's just a significant opportunity for us. And then as it relates to AO, the data advantage that we have, it's significant. We're in the very early innings of leveraging our data and productizing the data. So that's going to be, yet again, another long run for RealPage. And then finally, with the acquisition of LeaseLabs in 2018, we expect our Leasing and Marketing product family group to finally move beyond flat to low organic growth and accelerate as we proceed through to 2022. So it's a long answer to a very short question, John, but the revenue mix should continue at a pretty constant level, which would not, in any way, change the margin profile of the business.

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Operator [8]

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Next question will be from Sterling Auty with JPMorgan.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [9]

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So looking at the unit metric, really nice growth on the quarter. I think you made a comment about some of the bookings growth ahead of the revenue growth. Just wondering how we think about timing of those units upsell, cross-sell flowing into revenue and when we might see the full benefit of that. It doesn't really seem like it's fully reflected in the December quarter guide.

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [10]

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Yes, Sterling, one item that you have to take into consideration in the Q4 guide is, it is the seasonally low quarter for our products that are correlated to leasing velocity and the leasing season. So when -- so what happens is, as you have the dip in seasonal revenue, that puts pressure on RPU. But the Q4 guide is still 10% to 12% organic growth. So that's still a solid guide. And for the full year, we raised guidance on the top line as well as on adjusted EBITDA. But it takes typically -- Steve mentioned we're -- our backlog is at the highest level that it's been and that's an area where there's a tremendous amount of focus on how we can just increase velocity as it relates to implementing our products. And it depends on the mix of bookings on the time at which it actually converts to revenue. But on average, you're looking at kind of a 60-day mean time to implement to convert backlog to revenue. And that's been fairly consistent over the years. So the recent new sales bookings, you'll see that convert more to revenue in kind of the Q1, Q2 2019 time frame.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [11]

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That makes sense. And then just one follow-up. If you look at the solutions that are new to RealPage, especially the ones that had been most recently acquired, how would you characterize how well you've been able to get those in front of your existing customers just for that potential cross-sell opportunity? Is there still parts of the customer base that you're still in an outreach program trying to get in front of where maybe that also benefits 2019?

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [12]

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You have to break them down by acquisition. We're getting good -- I think Rentlytics will get traction almost out of the box with the product they have called Renovation Manager so -- and we're very excited about LeaseLabs as a new product. We're now -- our new service we're pushing into the market. It's too early to tell what traction we'll get out of that, but the initial indications are very positive. I mean, overall, we've had a lot of success with this acquisition strategy. And I think the opportunities for future acquisitions are just as rich as they've been in the past, so...

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [13]

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Yes, and what I would add to that, Sterling, is like as it relates to ClickPay, that's a -- we're moving into a new vertical or an adjacent market to this vertical, the HOA market. And so while we continue to penetrate that well with payments, and the ClickPay acquisition actually has been an extraordinary acquisition for us, there is the opportunity to take some of RealPage's existing products that we feel can be ported over, but that takes time. So while we have some acquisitions where, as Steve mentioned, out of the box we can immediately cross-sell, then we have areas where there's a significant market opportunity and it takes a little bit longer to take existing products, make those more applicable to the HOA market and then cross-sell. And then, finally, it's not just the products. It's the new units that come with these acquisitions. Because typically, we do pick up new clients. We pick up units that currently are not utilizing one of RealPage's products. And those units come on at about $20 per unit in the acquired -- from the acquired company because they're typically a point solution provider. And then we have the opportunity to take our 220 overall blended market opportunity in RPU and cross-sell into those new units. So we're also excited about the market share gain that occurs as a result of the acquisitions.

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Operator [14]

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The next question will be from Monika Garg with KeyBanc.

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Monika Garg, KeyBanc Capital Markets Inc., Research Division - Research Analyst [15]

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Bryan, let me extend my congrats on a good run here, too. So just a housekeeping one question, Bryan, very strong Q3 beat, but yearly raise is slightly lower than the beat. Any pull-in effect in the quarter or anything to point to?

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [16]

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No. I mean, what we did, as you perceived through the year, you know we have a range, and we start narrowing the range. And so what you saw in Q4 was the new acquisitions come in, and then also what you saw was us more tightening the range around the midpoint of where we were as of the last guide. And then, of course, on the EBITDA side, we raised EBITDA a couple million dollars at the midpoint while we continued to absorb dilution from acquisitions, recent acquisitions and the integration costs of our 2018 acquisitions.

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Monika Garg, KeyBanc Capital Markets Inc., Research Division - Research Analyst [17]

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Got it. And then very strong acceleration of organic growth of 15% in the quarter. Do you think we could see similar type of organic growth into 2019 also?

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [18]

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So yes, so during the quarter, we had 15% total organic growth. 2 percentage points of that is driven by the hurricanes of 2017 and the impact they had on those results versus the hurricanes of 2018, which had a much less significant impact. So normalized organic growth is 13% during the quarter, and the Q4 guide is 10% to 12%. So we feel there could be some opportunity to the 2 -- the 10% to 12%. The 2022 guide, again, is a 10% to 12% organic range, and we feel that given market opportunities that there could be some upside to that as well.

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Operator [19]

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The next question will be from Matt Hedberg with RBC.

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Matthew George Hedberg, RBC Capital Markets, LLC, Research Division - Analyst [20]

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Bryan, I'll offer congrats as well. I'll miss having you part of the RealPage story. Organic growth that you just -- was alluded to was impressive, and you talked about accelerated rep productivity. I'm wondering if you can get a little bit more color on that. I mean, is it success in targeting initial suite sales? Or maybe adding solutions reps to the general sales force? Just any other color there would be helpful.

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [21]

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Our suite sales are up, and I think that's part of the message here is we're bundling more products into a single sale. We've had great success with the decision we made, about 18 months ago, to create specialty rep teams that supplement the generalist reps, and they've been highly effective in improving the overall productivity of the teams. We've also had a great success improving the market -- marketing support for the sales team with a lot more effective campaigns. And the collateral material will help them quantify the value proposition in a more impactful way. So we're seeing improvements in this area. And candidly, we expect to see continued productivity gain with our sales force.

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Matthew George Hedberg, RBC Capital Markets, LLC, Research Division - Analyst [22]

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That's great. And then backlog again was up, and I think, Steve, you mentioned you're working hard to bring that down. How should we think about that? I mean, is there a seasonality to that as we enter Q4? Or, I guess, you alluded to slower rental months as we enter the winter season. Just sort of curious on how we should think about the seasonality of that going into Q4 -- or I should say, exiting Q4.

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [23]

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Seasonality you see more in the revenue line, not on the bookings line. Q4 should be a real solid bookings quarter for us. I wouldn't be surprised if we beat the Q3, which was also a really strong quarter.

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [24]

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Yes, our -- the seasonality in our bookings, our new sales effort, even though we're selling a subscription-based product, it still follows a cycle similar to perpetual-type products. Q4 is always the highest new sales booking quarter of the year. I would expect that, that would probably be the case again in 2018. And that will likely result in building backlog even further in 2018 that will provide great visibility and great opportunity for 2019 once we provide guidance in February.

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Operator [25]

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Next question will be from Stephen Sheldon with William Blair.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [26]

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So you talked about bookings growth and Asset Optimization being up, I think, 60% so far this year, and you mentioned seeing longer-term acceleration in organic revenue growth in that business. But just based upon the bookings activity you've seen so far this year, would you expect to see acceleration in 2019 from the mid-teens rate you've achieved in the business this year? Just any color on how we should think about growth in that business heading into 2019.

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [27]

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You're thinking about it exactly right. The Asset Optimization products tend to take a little bit longer to implement. There's more involved given the nature of those products and the data that's required in order for those products to work effectively. So what we saw in 2017, given the LRO acquisition and the length of time that it required to move that acquisition through the regulatory and HSR cycle, bookings slowed down, not only for our business, but prior to us owning LRO, bookings slowed down in that business. And that had an impact on organic growth as we've been seeing through 2018. But what's good is, in the last couple of quarters, that, what was being an impediment to bookings in '17 broke free. And now we have significant year-over-year bookings. And so that will ultimately manifest itself in revenue and organic growth in Q1 and Q2 and beyond in 2019.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [28]

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Got it. That's very helpful. And just with the backlog and the growing kind of uninstalled base, it's a good problem to have, is there anything you need to do in terms of implementation investment to maybe convert your backlog more quickly?

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W. Bryan Hill, RealPage, Inc. - Executive VP, CFO & Treasurer [29]

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It's a terrific problem to have. It's, at times, a complicated problem to solve, but that is a part of the Unity investment that we've been making. We have -- we saw this coming. Ashley Glover and the sales team has done a terrific job in taking our products and solutions to market. And so now it's converting into revenue. And so Steve had the vision of seeing this coming as a part of our North Star and our investment in Unity. We're working through ways to simplify the implementation process. I mean, ultimately, where you want to be, and we're not there at this point in time, but you want a self-provisioning model for your clients. Or you want a model where you're ultimately implementing all products once you retain a new client, regardless of the number of solutions in which they're subscribing to. So that's the effort, that's the strategy. Today as we're working through the technology side of solving the problem, we're absolutely utilizing just good old-fashioned man-hours and labor. And we're doing that through domestic as well as international resources to manage the cost structure.

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [30]

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And as Unity deploys, you'll see a significant improvement in the cost structure of this whole process of implementation of the product suites, one of the ways we're going to achieve margin expansion going into the '20 too.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [31]

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Got it. And then just one last one, if I can. With Rentlytics, you mentioned it's a Renovation Manager product. I guess, first, did you have any capabilities like that previously? And second, how should we think about the potential benefit of that product also getting plugged into your existing property data? Does it become more powerful by leveraging your data set?

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [32]

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It does become more powerful, primarily because of our sales force. Renovation Manager is used by operators that are rehabbing units to increase the yield. And there's probably 6,000 to 7,000 properties out there that are going through substitute rehab investments every year, and rehab (sic) [Renovation] manager helps quantify what the ROI is on these rehab investments. And so we're taking that product and selling it literally to every customer we have. We're also taking the Performance Analytics' benchmarking capability, which Rentlytics did not have, and we're pushing that back into the Rentlytic clients. There's almost 1 million units there that are target opportunities for us. So there's lots of cross-sell opportunity both ways on this Rentlytics acquisition.

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Operator [33]

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Next question will be from Brian Essex with Morgan Stanley.

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Brian Lee Essex, Morgan Stanley, Research Division - Equity Analyst [34]

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Stephen, I noticed you commented that the supply market seems pretty healthy right now. We're starting to see some signs of tightening supply in the purchase market. If we started to see tighter supply in a rental market, how have you typically responded with your business? How has that typically impacted your business, and how might that change the way that you're running things?

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [35]

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I think that my comment related really to the third quarter, where there was a slight tightening, primarily in the A class product. If you look at B and C class, that's already very tight. What we're seeing is a lot of new construction bringing in supply at the high end. And we do expect, given that the fourth quarter is the seasonally lowest leasing period of the year, that you're going to have more supply than you have demand. And I'd be surprised if you saw rent growth in the fourth quarter similar to what we've seen in the third. We are -- this market is gradually coming back into supply-demand equilibrium. And our model is -- probably works a little bit better if there's more supply than demand, but our customers need our product regardless of the imbalance.

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Brian Lee Essex, Morgan Stanley, Research Division - Equity Analyst [36]

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Right. Got it. And then maybe to kind of pivot into your M&A pipeline and what you're looking at, how are prices in the market for assets you might be considering, and what type of assets are you considering in the market?

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Stephen T. Winn, RealPage, Inc. - Chairman, CEO & President [37]

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We have a vast number of new entrants into this ecosystem that have very clever products. We have the luxury of picking companies to either partner with or acquire that have been successful with those new products. And I don't think there's going to be fewer of those in the future. I suspect we'll have just as many or more. We clearly think there is opportunity for our platform in adjacent markets. We entered the HOA market through payments, but believe there are additional opportunities for expansion in HOA. We think there is opportunity for international expansion. We still are not in the storage industry, and I think there may -- at some point, be an opportunity in that space. We clearly have had great success in the investment management area. And I wouldn't be surprised if you saw more acquisition activity there. Of course, whenever there's a competitor that is considering sale for whatever reason, we are usually at the table, not always, but we usually take a look. So I'm not worried about the M&A pipeline shriveling up on us. And I also think we don't, haven't set some real high expectations here. We need to hit 3% to 5% revenue growth through our M&A strategy.

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Operator [38]

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The next question will be from Pat Walravens with JMP Securities.

Well, it seems like Pat's line is disconnected.

So at this time, we want to end today's question-and-answer session as well as today's call. We want to thank everybody for attending today's presentation. And at this time, you may now disconnect.