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Edited Transcript of RP earnings conference call or presentation 6-May-20 9:00pm GMT

Q1 2020 RealPage Inc Earnings Call

CARROLLTON Jun 13, 2020 (Thomson StreetEvents) -- Edited Transcript of RealPage Inc earnings conference call or presentation Wednesday, May 6, 2020 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

* Thomas C. Ernst

RealPage, Inc. - Executive VP, CFO & Treasurer

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Conference Call Participants

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* Alexis Magee Huseby

D.A. Davidson & Co., Research Division - Senior Research Associate

* Jackson Edmund Ader

JP Morgan Chase & Co, Research Division - Analyst

* Jason Vincent Celino

KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst

* John Robert Campbell

Stephens Inc., Research Division - MD

* Joseph D. Vruwink

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Patrick D. Walravens

JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst

* Ryan John Tomasello

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Stephen Hardy Sheldon

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

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Presentation

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Operator [1]

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Greetings, and welcome to the RealPage First Quarter 2020 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Rhett Butler, Vice President of Investor Relations.

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

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Thank you, operator. Good afternoon, and welcome to the RealPage Financial Results conference call for the first quarter ended March 31, 2020. With me on the call today are Steve Winn, our Chairman and Chief Executive Officer; and Tom Ernst, our Chief Financial Officer and Treasurer.

In our remarks today and in response to your questions, we may make statements that are considered forward-looking within the meaning of federal securities laws. Forward-looking statements are based on management's current knowledge and expectations as of today and the date of this call and are subject to certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements.

We may also use or discuss non-GAAP financial measures as defined by Regulation G. Definitions of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measure are included in today's earnings press release. For more information on these topics, please reference the section titled cautionary statement regarding forward-looking statements and explanation of non-GAAP financial measures in today's earnings press release.

With that, I'll hand the call over to Steve.

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

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Thanks, Rhett. Welcome, everyone, and thank you for joining us this evening. What started off to be a great quarter, fell short in March by about $3 million in revenue relative to the trajectory of the first 2 months. Notwithstanding the impact of COVID-19, total revenue grew 18% to 271 -- excuse me, $277.1 million, and adjusted EBITDA grew 10% to $71.5 million compared to last year, within our range of guidance.

Operating cash flow, excluding changes in restricted cash relating to accounting changes, grew 22% to $67 million. While the COVID-19 impact on Q1 was relatively small, we are reducing our revenue outlook for 2020 by 3% to 5%. Reduced revenue guidance is driven by lower expected bookings in the first half of the year, and slower leasing velocity impacting screening, contact center and transactional spend related to turning units. We expect these negative impacts will be offset to some extent by increased bookings and activations for products and services that facilitate virtual leasing, living and payments.

We're reducing our full year adjusted EBITDA guidance by 5% to 7%, which is a larger percentage drop in revenue. While we intend to adjust variable costs due to lower revenue and the realization of some productivity improvements, we do not expect to reduce product development or sales and marketing spend given our view that clients will have an increased need for products and services that help them accelerate their transition to more virtual operations. Our adjusted guidance assumes that client operations return to normal state by the third quarter of this year. We are already seeing signs of a recovery in the data, and I'll share that with you in a minute. Tom will provide more detail and context in his prepared remarks as well.

RealPage has been instrumental in providing the industry near real-time insights to reveal what was happening day-by-day as the economy shut down and residents sheltered in their apartments. In the last 45 days, we've conducted 13 webcasts with over 10,000 attendees, providing a vast amount of relevant information, including unique insights by geographic location and asset class. You can view these past webcasts as well as register for future ones on our website.

We've been contributing data to the national multifamily housing council effort to monitor industry-wide rent payment impacts as well as collecting additional data points of our own to look at COVID-19 effects throughout the rental funnel, from marketing to living -- or to leasing to living. Our clients were especially concerned about collection of rent payments. Our repository of real-time rent payment data gives us an accurate and immediate insight into the percentage of units paying rent. The percentage of units paying rent went from 94.2% in April of 2019 to 91.1% in April of 2020. That's a 3.1% decline.

Some parts of the country, COVID-19 hotspots and areas more sensitive to the declining hospitality industry experienced more pain. Other areas like Texas and the Rockies and Great Plains states were impacted by less than the national average. So like anything that pertains to real estate, location matters. We anticipate that the percentage of units paying rent in May could drop further, given the increase in unemployment, and you should be able to follow that on our website or on industry websites like NMHC and NAA.

We also included slides in our IR deck that focus on data relating to changes in the multifamily leasing environment. The percentage change in website traffic dropped 20% by March 25, but has returned to a positive 10% to 15% range by the end of April. So residents are still looking for apartments. New lease executions were up 2% at the end of February but bottomed out at 40% year-over-year decline by the end of March, but then rebounded almost to even to last year by the end of April. This is a very positive sign. Renewal percentages were flat at the end of February, but within about 2 weeks, jumped up by over 20%. While these numbers are bouncing around, we're seeing overall that while new leases dipped in mid-March, increased renewal leases are offsetting a lot of the decline in overall leasing activity.

In addition to providing industry data in real time, our data teams responded to our clients and quickly prioritize projects to include more delinquency metrics in our Business Intelligence and Performance Analytics solutions. As a result, going into the May rent cycle, we've added in a range of dashboards and metrics allowing our clients to monitor daily, weekly and monthly rent payment and delinquency trends. This effort was on top of their already full road maps, which included delivering more affordable housing and accounting insights into BI in the last quarter. I'm very proud of our team's response to the unexpected and highly fluid events that have played out over the last 45 days. In addition to the great work of data science, we responded strongly to our clients, and we did it without suffering any business disruption internally.

Operationally, we were able to transition over 98% of our employees to work from home in a matter of 2.5 weeks. In anticipation of possible loss of labor due to shelter-in-place orders in specific regions, we spun up 4 temporary labor centers with 180 workers in case we needed to transfer work from locations that were temporarily placed out of service. Our global workforce balancing systems dynamically move work between 27 locations around the globe. We geared up our contact centers and electronic payment systems to accept unprecedented increases in volume since most of our clients were no longer staffing their leasing offices. Tom will discuss the implications of these increased expenses, but they were insurance that our service levels did not decline during the pandemic.

COVID-19 has had an impact on the way we think about the business going forward. First, we launched initiatives to improve work from home productivity. We're extremely pleased with our success here since we've been able to maintain service levels with over 98% of our employees working at home. As COVID-19 began to impact our business, we adjusted our labor cost to maintain profit margins. We intend to continue programs to drive productivity improvement and have elevated productivity to 1 of our 7 core imperatives for the future.

One example of this is a new AI chatbot that we announced yesterday and we developed and deployed to help reduce call center chat activity, which is part of our Contact Center 3.0 solution. Our clients who are using it are delighted because we are the only AI chat service in the market that augments our chat functionality with access to live agents if the resident or prospect ever wants to pivot the chat to a real person. This solution helps clients who understand that not all chats can be preprogrammed, and it helps RealPage improve productivity and allows us to be more price competitive while maintaining margins.

We are not the only one thinking about productivity. Our clients have come to the stark reality that there are times they need to operate their properties with no one in the leasing office. The current crisis has proven that the virtual leasing office is possible, where prospects can visit the property online, schedule a tour, walk the unit and see amenities with a live agent on video conference, and then lease online. RealPage intends to facilitate every aspect of this virtual prospect journey. There was already a trend in our industry to move more and more work off the site and reduce dependency on site staff.

In the past, residents would drop off their rent check at the leasing office. When the pandemic hit, there was no one in the leasing office, so residents had to go online. Online payment transactions volumes have jumped more than 20% in the last 45 days replacing paper checks. And most astounding, usage of our online resident portals jumped 75% from the beginning of March to the beginning of May. We literally helped millions of residents migrate to virtual living in a matter of a few weeks.

We continue to see high-value from our ClickPay acquisition in 2018, particularly in this challenging time. ClickPay serves a broad range of customers in multifamily, single-family and HOA markets and is focused on helping New York-based owners and managers with virtual solutions. ClickPay's payment services are now integrated into our virtual leasing and living solutions, on top of third-party property management systems and are helping our clients weather this storm. We also continue to see more and more HOA sales from ClickPay, further proving out our belief in the viability of these markets for RealPage.

The current crisis also made it clear to our industry that state and local government intervention is going to disrupt normal imbalances in supply and demand that drive rents in an open marketplace. While you might think government actions would limit the effectiveness of revenue management, just the opposite is true. We announced AI revenue management in Q1, which optimizes demand, credit, lease terms and leasing agent behavior by floor plan type, and it happens to work best when volatility is high. Using our benchmarking database, we compared units that are revenue-managed against the broader peer group in each submarket that they compete with for the months of March and April. We were pleased that the revenue management engine produced 60 basis points of incremental price yield on new leases and 80 basis points of incremental price yield on renewal leases compared to the peer group. Perhaps the greatest surprise of all was that our revenue management sites increased their renewal percentage by a full 100 basis points more than their submarket peers who were not using revenue management.

James Flick, Head of Revenue Management at Camden Property Trust shared this, "As a longtime leader in leveraging technology to drive performance, we know the importance of getting it right all the time. Camden is relying heavily on RealPage revenue management systems, analytics and their teams of advisers to identify opportunities to preserve NOI and drive revenue in these difficult times." Overall, we're very pleased that operators seem calm in the face of this crisis, and owners like Camden are letting science trump emotion to optimize revenue.

Another effect highlighted by the current crisis is the importance of increased retention. If an owner can keep a resident in their current apartment or a network of other apartments that they own or manage, this is 1 less new renter that they have to find. Retention rates have been increasing steadily for the past 10 years and now hover around 53%. This number can go up if you employ loyalty and rewards programs, like those offered by Modern Message, a company that RealPage acquired earlier this year, and we are integrating Modern Message into our Resident Portal solution, ActiveBuilding.

Also, Modern Message helps properties improve their online reputation because we are now the largest destination that renters look to for online reviews other than Google. To quote one of our clients, "Our data is showing the top-ranked properties with the highest online reputation need half as much traffic to close leads when compared to our lowest performing properties." Modern Message generates on average over 160 reviews per property, and we now support over 1 million reviews.

We are also seeing increasing concern about the amount and timeliness of rent payment. This doesn't just apply to residents that are struggling to make their rent payment because they've lost their job for COVID-19-related reason, it also applies to all renters. Never has it been more important than now for screening algorithms to measure a resident's willingness to pay, not just their ability to pay and discern this information without relying on eviction databases.

AI Screening, which we released last year, is our innovative screening tool that addresses willingness to pay, and we're receiving accolades from owners who are achieving lower default rates with this tool. For example, [Courtney Balles] at [JBM Realty Corporation] said, "There's no bigger test of AI Screening's ability to help predict a renter's willingness to prioritize their rent obligation over others than a global pandemic. While we were unsure of what to expect during an uncertain situation, we ended April at a much improved 1.7% delinquency for the portfolio with AI Screening in place."

As a quick update on our acquisition integration efforts, we've been working feverishly to unlock RealPage ancillary services that can be offered to the Buildium customer base. As you may recall, Buildium was acquired by RealPage in December of last year and expanded our market share in the underpenetrated SMB segment of the market. Since the acquisition, we've integrated SimpleBills, our utility billing solution for single-family housing, and have launched this differentiated service in both the Propertyware and Buildium installed base.

In addition, we will be filling a hole in the Buildium product, offering LeaseLabs websites to Buildium customers. We're vastly expanding the insurance offering available to Buildium clients, and we'll soon be offering a low end version of our IMS Platform for Buildium clients who need systems to manage investor reporting. As a reminder, we acquired Buildium to expand our presence in the underpenetrated SMB market.

Buildium revenue jumped a whopping 35% in the first quarter, and our total SMB annual contract value is now nearly $385 million. We believe RealPage is the largest provider of SaaS software for the SMB rental housing market. We intend to up our investment in SMB, and we'll be announcing new innovation over the next few months to further differentiate ourselves. Most important, RealPage will be releasing APIs into our SMB platform so that third parties can integrate with us. Both Yardi Breeze and AppFolio are closed platforms, which, in our view, stifles industry innovation. At RealPage, we believe platforms should be open so that third-party innovators can complement our platform.

While COVID-19 has had a short-term negative impact on RealPage that will continue through the rest of this year, we believe the pandemic has shocked our industry into accelerating the move from paper to virtual operating environments, a move that bodes well for our long-term future.

Thanks for joining us today. With that, I'll turn the call over to Tom.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [4]

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Thanks, Steve, and good afternoon, everyone. I also could not be prouder of the RealPage team's response over the last 2 months. The team swiftly adapted to the changing work environment while also adapting to support our customers' changing needs, enabling them to make their communities safe for their residents and employees while mitigating the financial challenges of unemployment and social distancing on their properties.

We provide an essential service to our customers, which they rely upon us to deliver. We did deliver and we remain fiercely committed to doing so. On behalf of RealPage and its customers, to team Realpage, I would like to give a very big public thank you.

We believe RealPage is very well positioned to deliver on this commitment. We are well capitalized, have strong cash flow and a proven recurring business model that allows us to continue to invest in and drive the innovation that our customers need and the growth that provides shareholder value. As Steve mentioned, normal seasonal leasing activity that starts ramping in March and runs through the fall was significantly depressed in March compared to prior years, even when compared to the seasonally low winter months of 2019 and the beginning of 2020. While our subscription business model is largely unaffected by these trends, we do have some sensitivity to activity driven seasonality. This can be observed in the normal seasonal pattern our revenue has historically followed with the second and third quarters being our strongest for quarter-on-quarter growth, and the first and fourth quarter is typically showing less sequential growth.

Moving on to the quarter. The first quarter financial performance was solid despite the macroeconomic backdrop. Total revenue grew 18% year-over-year, which included 10% growth on an organic basis. We were on track with our internal budget and the high end of the revenue guidance range at the end of February. The slowdown in revenue driven by leasing activity, along with the slowdown in new project activations, were primarily responsible for revenue performance near the low end of our guidance range for the full quarter.

Our earnings and cash flow performance was strong. Adjusted EBITDA of $71.5 million grew nearly 10%, and we generated $67 million of operating cash. While we do not anticipate reporting this type of data on a continuing basis, we thought that additional disclosure on Buildium would be helpful in the first full quarter as part of RealPage. Buildium contributed over $16 million of revenue during the quarter, growing over 35% year-over-year, with significant adjusted EBITDA margin expansion on a stand-alone basis.

Total RealPage ACV growth was 19% compared to the prior year, consisting of 16% new unit growth and 3% revenue per unit growth. We ended the quarter with 18.9 million units, consisting of nearly 10 million multifamily units from owners and managers with over 5,000 units and over 9 million SMB units.

Total bookings production experienced a strong start to the year. However, March did see a significant slowdown. We are seeing strong but early signs of improvement as the second quarter is proceeding. Total sales team members at the end of the quarter were 576, representing 22% growth compared to the prior year quarter. We expect to invest modestly here under the current climate and continue to focus on productivity.

From a profitability perspective in Q1, adjusted EBITDA margins contracted by nearly 200 basis points to 26% compared to the prior year period. Lower adjusted EBITDA margins were driven by gross margin investments and growth initiatives, including acquisitions, and by continued sales force investments and general and administrative investments in infrastructure.

Looking at the drivers in more detail. Product development cost as a percentage of revenue decreased nearly 100 basis points year-over-year and continues to be driven primarily by our efficiency initiatives implemented in early 2019 that enable us to allocate more resources towards innovation projects while optimizing maintenance projects.

Sales and marketing costs as a percentage of revenue increased 60 basis points year-over-year and was driven primarily by increases in our sales force, which grew by over 100 total reps. Our primary area of investment were in the SMB business and in lead generation capacity as we begin to pivot during the COVID-19 crisis.

General administrative costs as a percentage of revenue increased 150 basis points year-over-year and was driven primarily by incremental acquisition costs and infrastructure investments to drive efficiency and scale over the long term. As a result, we expect strong G&A leverage as we exit 2020 and as we move into 2021.

During the quarter, we generated nearly $67 million of operating cash, excluding the impact from changes in restricted cash related to accounting treatment changes. Our leverage ratio is now 3.3x. This is comfortably within the 2x to 4x range we believe is optimal operationally.

As we turn to our outlook for the second quarter and the year, we take confidence in the essential nature of the support we provide for our customers' business and our performance thus far in the challenging environment. This combines with the intrinsic visibility of our SaaS model to enable continual execution of our growth plan, albeit with a wider uncertainty cone around how the macro scenarios unfold.

Before turning to guidance, I'd like to frame the scenarios we contemplated. In establishing the high end of the range, we assumed that we would see over the remainder of the second quarter and the year, a continued ramp-up in return to work levels, leasing activity levels and our customers' willingness to engage new projects. In addition, the high end assumes that we will see a bit of a catch-up leasing echo season in the second half of the year.

At the low end of the range, we assumed little recovery in either leasing activity or client engagement of new initiatives for the duration of 2020 from the activity levels that we saw in March and April. While this may seem like a harsh planning assumption given the nature of the unique macro potentialities, we thought it prudent to include that scenario at the low end of our guidance.

Accordingly, our outlook for 2020 is: for the second quarter, we expect non-GAAP revenue of $276 million to $280 million, which represents growth of 13% to 15%, including 5% to 6% organic growth. Adjusted EBITDA is expected to be $66 million to $70 million, which represents margins of 24% to 25%. Our second quarter adjusted EBITDA is expected to be impacted by over $3 million of spend that we incurred to ensure not only that we are ready to respond during the COVID-19, but also that we went above and beyond for our customers, including establishing the temporary labor centers and investing in the product and marketing initiatives that Steve mentioned in his comments. The need for spend in these areas has plateaued in the second quarter, and we expect margins to expand as the year progresses.

Non-GAAP diluted earnings per share is expected to be $0.38 to $0.42. For the full year, we expect non-GAAP revenue to grow between 13% and 17%, including 5% to 9% growth on an organic basis. This represents revenue of $1,115,000,000 to $1,155,000,000. Adjusted EBITDA is expected to be $290 million to $300 million or 26% of revenue, representing a reduction of 150 basis points of margin versus our previous guidance.

While we intend to adjust variable costs due to lower revenue and the realization of some productivity improvements, we do not expect to reduce product development or sales and marketing spend, given our view that clients will have an increased need for products and services that help them accelerate their transition to more virtual operations. Non-GAAP diluted earnings per share is expected to be $1.74 to $1.84.

In summary, we believe we are on solid financial footing and have a strategy to weather the storm during the current macroeconomic backdrop. We are an essential service to our customers, and we remain fiercely committed to supporting our customers, and we are proud of our performance to date through this unprecedented challenge.

Lastly, due primarily to the COVID-19 crisis, we are moving our Analyst Day to a virtual event in the first half of August. By holding the Analyst Day a couple of weeks after RealWorld, we will be able to benefit by packaging together some of the content from the customer event for investors.

This concludes our prepared comments. Operator, let's open for questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from John Campbell from Stephens.

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

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So I just want to touch on the leasing -- the less leasing activity kind of expectation you guys called out. I had to hop on late, so I apologize if I missed this, but can you talk to how long do you think winter turnover stays muted?

And then Steve, if you could maybe touch on kind of any commentary that you guys are maybe hearing around rent forbearance and whether property managers are just being creative with lease terms and trying to lock existing renters into longer-term contracts?

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

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Well, we were pleasantly surprised that the rent collections dropped only 3% in April. Given the literal shutdown and the amount of unemployment, we had anticipated that would be higher. Leasing activity collapsed right around the time that Tom Hanks announced he had COVID-19. But it fairly quickly came back. It was only down for 3 or 4 weeks, and we began to see a trend back up, and we have a slide in our IR deck that shows that. Probably the most encouraging event was everybody that had planned to move, rescinded their notice to vacate and stayed put. And so we saw a jump in renewal rates, which helped mitigate the reduction in new leases. So things -- you went in expecting the worst, and I think what we've seen is quite encouraging. This is not over, of course. So can't predict where it's going to go. But right now, we are returning to normal.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [4]

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Yes, John, I'd encourage you to take a look at the investor deck. We put some slides from our dashboards in the deck that we typically don't put in that we thought might be helpful around overall leasing activity across same-store analysis and -- in our customer base, along with website traffic data from our customer base as well. So you can see kind of the data as we're seeing it, and it really is a striking V that -- who knows what May brings, but it's been an encouraging ramp off the bottom.

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John Robert Campbell, Stephens Inc., Research Division - MD [5]

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Okay. That's helpful. And then, Tom, I don't know how much additional detail you can give on this, but I thought I would give it a shot. On the transactional revenue, I mean, obviously, 10%, 11% of revenues now. Could you talk to what that mix looks like? I don't know if you can go down to the product type or maybe just down to the segment level, like, where that's kind of falling on a segment basis?

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [6]

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Well, we have -- within our subscription business, we have components of multiple of our products that actually get metered-based on underlying transactional activity at the property. The screening software is one example of that where it's majority subscription but there is a component that's based on the activity levels similar with our payments business. So across multiple of our businesses, there are some metering on a transactional basis. This is entirely the driver you're seeing behind what -- and you can see in the data that we showed on the overall leasing activity, where at the end of March, we were actually seeing the percent changes in new leases across the 6,600 communities. The same-store analysis shows it was down over 40%, right? So that's the sensitivity that drove us to report towards the low end of our guidance range rather than the high end in the quarter to give you a sense.

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Operator [7]

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Our next question is coming from Pat Walravens from JMP.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [8]

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Can I talk a little bit about the payments business. So Resident Services was $119 million. And so my questions are, how much of that is payments? And what are the puts and takes in payments for you guys now? I mean if people don't pay their rent, I assume you'd lose the transaction fee, but then on the other hand, guessing people don't want to write checks as much as they used to and hand the check to someone, so maybe you're seeing more activity there. Just love to hear your thoughts around that.

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [9]

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Well, payments are way up overall because everybody went online. You couldn't take a paper check to the leasing office so you had to go online. So the mix of payments has changed, but the actual transactional volume is not materially different. It's up because our business is growing.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [10]

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And Steve, of that $119 million of Resident Services, how much is payment?

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [11]

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So Pat, we don't break it up, but payments is the largest in the Resident Services line. Our largest are payments, are Utility Management and Renters Insurance businesses, with payments being the largest.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [12]

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And then when you talk about payments, it seems like you referenced New York a lot. What's different about the ClickPay solution for New York versus for the rest of the country? And is that something that's evolving?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [13]

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ClickPay was strong in New York, and RealPage was not. And we mentioned it because we've had so much success with ClickPay and New York happens to be their largest market. You have to pay rent in New York like anywhere else so...

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [14]

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Now we're seeing the same trend in the ClickPay New York business as were in the overall payment businesses Steve alluded to where it's -- where you're seeing more online. So it's performing well.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [15]

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Okay, great. And then last one for me on this subject. So 3% rent collection payments -- rent collection drop in April, what are you guys expecting for May and June? Or what are you modeling?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [16]

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It's early, clearly. Our expectation is it will probably be slightly lower. I'm not expecting a big shift downward so.

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Operator [17]

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Next question today is coming from Ryan Tomasello from KBW.

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Ryan John Tomasello, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [18]

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Just wanted to drill down a bit more into the major assumptions of the revised 2020 guide. Tom, can you quantify how much of the 300 basis point to 500 basis point revenue growth reduction specifically relates to these more temporary transactional headwinds from things like screening, leasing and turnover volumes? And then similarly, how much of that relates to delays in new project activation and lower bookings levels from clients?

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [19]

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Sure, absolutely, Ryan. So as we planned through the scenarios, those are definitely the 2 biggest factors. And they're roughly equal in magnitude at the midpoint of our planning assumption. That is the headwind from new projects, both bookings and activation levels versus the leasing activity driven.

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Ryan John Tomasello, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [20]

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Okay. Got it. That's helpful. And then just regarding the M&A landscape, are you seeing an increase in volumes of unsolicited inbounds there? And if so, what approach are you taking to underwriting in this new environment? Do you have appetite to consummate M&A at these leverage levels? And specifically, what areas of the market might interest you and kind of present the most value, assuming we start to see more distress amongst the smaller players in that landscape there?

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

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There clearly is a heightened M&A interest in almost all areas. There's over 100 companies that are competing 1 place or another with RealPage and a lot of the creative innovation is happening with many of these companies. I think prices will come down just because the environment is not as strong as it used to be. And RealPage is still intends to be active in evaluating as many of these opportunities as we can and pick those that are most complementary and have the most leverage on our business model.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [22]

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Yes. And we're seeing a range, too, as we look at some ancillary spaces. There are clearly some that are under more stress where prices have already started to come down such as in the short-term rentals market or the pockets like that. And as we think about leverage, so we're at 3.3% leverage, as I mentioned in my prepared remarks, Ryan, that's comfortably in the 2% to 4% range that we think is optimal for us. Now we do recognize, too, in an uncertain environment that we're probably a little less hesitant to go to the high levels that our credit facility allows us to, which would be a 5x leverage or even an accordion up to 5.5x. But we do want to be smart in an environment, as always, and if there are attractive areas that can help contribute to our innovation, we will take a close look. But we will definitely be prudent with thinking about high levels of leverage in an uncertain environment.

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Operator [23]

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Our next question is coming from Stephen Sheldon from William Blair.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [24]

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And really appreciate the data on daily visitors and leasing activity. Wanted to ask about bookings activity so far in 2020 by product category. And is there anywhere that's been notably above-average or below average by product? And I'm just wanting to gauge maybe more recently, what types of product clients are focused on in this environment? And maybe where they're not willing to make decisions yet or pushing out activations?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [25]

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Where you see a lot of interest, in virtual leasing, living and payments. I think this industry was trending slowly towards a move to go virtual, but it was going to take 5 or 10 years to get there. What's happened in the last 2 months is going to accelerate that in a massive way. And I think all operators will demand fully virtual platforms that allow them to originate demand, capture demand, close demand, do online tours, screen and even deliver the code to the smart lock that opens the apartment for them. So that's -- this is development that we've been working on for some time and feel like we want to even accelerate some development that's been going on in that area. Another mega trend, in our view has to do with residents that are now going to work more at home. So those apartment owners and operators that can deliver the most convenient work and living experience at the apartment will be the winners in the future. And so many of the portal tools that we offer are going to become more and more important. And as I said in my remarks, we saw a 75% increase in usage of our Resident Portal. So I don't think that's going to change. I think the residents are hooked on it, and they're going to stay with it so...

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [26]

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Stephen, I'll add to that, too, that the team here made a rapid shift to put together packages and campaigns to drive some of that shift that Steve is talking about, and we're successful in moving about 15% of the pipeline to this virtual living, leasing and payments businesses. So that was quite successful and resulted in significant deals as well. But as we looked at the results, and I commented in my results how we did see significant impact or depressing impact to bookings, particularly in late March. We have seen early signs of recovery in that. And as the teams looked at where we're driving bookings, it's actually pretty broad-based. So we're seeing a big number of midsized deals as we look at the pipeline, they're across the range of what we do, including some areas you might expect would be even more deeply impacted such as student coming in late in April. So overall, it's an encouraging kind of broad-based recovery, albeit it's definitely lower levels than we had planned pre-COVID.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [27]

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Got it. That's helpful. I guess, the weaker bookings in late March, was that concentrated in any specific product category?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [28]

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No. Everybody literally hunkered down to survive. There was a freeze up with one exception, and that is anything they could do to get payments from paper to electronic, they bought instantly.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [29]

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Got it. And one more, if I could. Just wanted to ask about the risk to implementations in this environment from in-person restrictions. I know you're working and have made progress to simplify processes and allow for more self-provisioning. Is it -- could it be a meaningful headwind to what revenue streams could be implemented and come live this year?

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

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I don't think so. We had an exceptionally good quarter on the implementations, and we were concerned when we went to work at home that the productivity would decline. But in fact, we've managed that tightly, and we're very, very pleased with the performance of our team. We didn't have any service-level problems at all. And it was all -- 98% of it was being done work at home. We were also load-balancing work around the world. So if we had a location in, say, the Philippines that was down for a couple of days. We could ship that work to India or the U.S. and our customers never saw it. So I don't see this environment being gated by or having any implications to our ability to accelerate implementations and continue to work some of our people at home. I don't think we're going to bring everybody back for a long time.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [31]

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Yes, looking at the numbers, Stephen. Looking at the numbers, the implementations did track roughly what happened with our bookings. And so we had a pickup of momentum, particularly as we looked as April progressed. So that we ended up with effectively not producing new backlog. They roughly tracked.

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Operator [32]

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Our next question is coming from Peter Heckmann from D.A. Davidson.

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Alexis Magee Huseby, D.A. Davidson & Co., Research Division - Senior Research Associate [33]

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This is Alexis on for Pete today. I just wanted to ask a few questions about customer behavior. So it sounds like you have 9 million SMB units. And I'm wondering if you've seen a major difference in behavior on the part of your relatively smaller versus larger clients, and kind of in line with that, if whether or not any customers have requested pricing concessions or waivers for monthly payments?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [34]

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We've actually had very strong collections. We're -- our DSO is better today than it's been.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [35]

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In the last 3 years, yes. And so we had our best DSO in 3 years this quarter.

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [36]

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I mean we're on top of that. We are an essential service. So is one part of the customer base in more pain than another? It turns out that Class C apartments, which are the lower end of the multifamily space, actually suffered less decline than A and B. So it's not clear that SMB is going to be more impacted. We're just not seeing that.

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Alexis Magee Huseby, D.A. Davidson & Co., Research Division - Senior Research Associate [37]

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All right. That's really helpful. I definitely appreciate all the incremental data. So would the company be considered, in most cases, a critical vendor that would continue to be paid in the event of, say, a Chapter 11 bankruptcy filing on the part of a property management firm?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [38]

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You can't really operate an apartment today without all of the online systems that RealPage offers. So I can't fathom a situation where an operator would just turn off the system and go to spreadsheets and paper checks for everybody. That just -- I think we are an essential service, and I think RealPage would be the -- one of the last to cut.

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Alexis Magee Huseby, D.A. Davidson & Co., Research Division - Senior Research Associate [39]

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Yes. Sure. Fair enough. Fair enough. And then just one last one. It was great hearing about the 20% boost to payment volumes. I'm wondering about the relationship between the downtick in new leases offset by the renewal leases, of course. How is that affecting tenant screening volumes?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [40]

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Screening was down, particularly in the mid-March through mid-April, it was down a lot. It tracks. If you looked at the slide that showed new leases, screening will track that. So it was down, but it's recovered. It's come back to pre-COVID levels at this point.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [41]

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Although we're watching that closely. So that is the most recent data. But as I outlined in our planning assumptions, we kind of -- we don't assume that -- we don't assume in the scenarios that we have year-on-year growth in screen, say, for the high end of the range.

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Operator [42]

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(Operator Instructions) Our next question is coming from Joe Vruwink from Baird.

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Joseph D. Vruwink, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [43]

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I'm wondering if you can talk, I think it's a $27 million reduction in EBITDA midpoint to midpoint. How much of that is being prioritized to maybe the strategic leaning in on some of these categories that might actually be kind of category winners longer term? And then how do you think about the ROI on that investment that start to take place this year?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [44]

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This is full year guidance.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [45]

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Yes, full year guidance. Right.

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [46]

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Yes. The revenue reduction is, of course, what's driving most of that $27 million. What we did not do was cut our product development, sales and marketing budgets. So had we declined those at the 3% to 5%, then EBITDA would have tracked. But we really feel like we need to keep those dollars in play. There's too much opportunity. Crisis is always followed by rebirth. And this is going to be a new world as our industry shifts from paper to virtual, and we want to be at the forefront of that shift and really drive that shift as much as possible. So don't show a weakness at this moment.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [47]

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And also, Joe, so I mean that's top priority. We're also remaining invested in the SMB strategy that we outlined for you when we acquired Buildium and we spoke last quarter. So we're continuing to hire there, significant investment. They're growing strongly. They grew 35% in their first full quarter. So that's up from the 32% they were growing when we acquired them. So look for us to continue to remain invested in that. We've talked about a number of other initiatives that are -- we didn't detail on this quarter, but we previously talked about that we continue to invest in from a product development standpoint and go-to-market standpoint.

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Joseph D. Vruwink, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [48]

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Great. I guess that, Steve, the rebirth is what I'm interested in when you talk about a 5- to 10-year trend structurally changing within a matter of a couple of months, just thinking about online leasing practices would be one. But when you think about that unfolding, I'm not saying it helps 2020, but as you look into '21, 2022, maybe relative to an organic growth rates that was already expected to be kind of low teens, do you think that gets pushed higher by some amount? Do you have any idea of what that amount might be?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [49]

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Well, we're still committed to our 2022 goal of $1.5 billion in revenue and $500 million of adjusted EBITDA on a run rate basis. If we get more clarity on how these investments are going to perform, we may change that guidance, but we're not backing off of that long-term objective as a result. I mean COVID is not changing that. But I don't think we're in a position at this point to raise it.

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Operator [50]

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Our next question is coming from Jason Celino from KeyBanc Capital Markets.

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Jason Vincent Celino, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [51]

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A lot of uncertainty in the rental markets has been around this fear of tenants unable to pay. April payments, you can say, was better than feared. We still need to see May and June, but let's say it also comes in a little bit better this year. Do you think the customer propensity and their budgets come back? Or do you think owners will still be conservative?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [52]

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I think owners are going to buy technology that improves their bottom line. And going virtual will drive efficiencies for this industry. Notwithstanding 3% to 5% movement on collections from their residents, they're going to spend the money because the returns are so fast and so real, and they know it works now. Nobody -- there were a few operators that had figured out going virtual was going to happen, and we're actually orchestrating that shift. But this last 2 months has proven it works. And I think the technology that will drive virtual living and working at an apartment is going to be huge. And there are a lot of derivative products and services that will fall out of that. And so I'm bullish. I mean I do think there's going to be a rebirth and a change in the way our industry operates. And I think technology is going to become more important. The industry spends about 1% of its revenue on technology today. RealPage has about 17% of a $6 billion technology spend, excluding telecom, and I am absolutely convinced because we can show the economics that the industry will grow that, and we're hoping they grow over the next 5 years to at least 1.5% of spend on technology, which should be $10 billion. And if RealPage is more helpful than the competitors and helping them get there, we would hope our market share would grow above 17% of the overall pie.

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Jason Vincent Celino, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [53]

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Okay. Great. No, that's actually pretty helpful. I guess one more, if I could fit it in. The slowdown in leasing velocity that you anticipate, do you think that it will be different for maybe a single-family property versus a multifamily property? Or would it be the same?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [54]

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We haven't seen a difference. I mean everybody hunkered down. Again, it's early in this rebound so there may be a differential. But at this point, we don't see it.

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Operator [55]

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Our next question is coming from Sterling Auty from JPMorgan.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [56]

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Great. This is Jackson Ader on for Sterling tonight. A couple of questions from our side. The first is, could we maybe just talk about the balance between net new logo additions being delayed in terms of their bookings deals versus maybe existing customers that are looking to -- that RealPage is looking to cross-sell and they have delayed maybe their decision making?

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [57]

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I think we saw an impact in both. I mean the environment -- the kinds of calls we are getting from customers was whether it was new or add-on deals or even things that were already in backlog, the calls were the same. I'm excited about this RealPage, but I'm dealing with an emergency right now. Call me back in a couple of weeks, please. So it was across both.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [58]

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Okay. So nothing necessarily to call out, one way more impacted than the other?

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [59]

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I don't think so. No, it's still early. But as we've looked at what we are booking post-COVID, as I mentioned, we're seeing a pretty nice mix of not only new and add-on, but it's across the product set as well. Obviously, it has shifted, as Steve has highlighted, to the virtual living, leasing and payments. That's been the big shift to call out. Otherwise, it's fairly broad-based.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [60]

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Okay. And then, Steve, a follow-up for you. How do you view maybe end customer consolidation? Would you view that as a net positive, net negative or neutral to RealPage? And how have you handled that in the past?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [61]

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There's been some consolidation in this industry, but not a lot. I remember when we came in to this industry, Equity Residential, I think, had 200,000 units, and there's only couple owner operators that have more than 200,000, 20 years later. So it's remained a fragmented industry. And there's nothing that would suggest that there's going to be massive increases in the size of 1 or 2 of the owner operators. I think Greystar at this point is the largest, and they're 400,000 or 500,000 units out of 65 million.

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Operator [62]

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Our next question is a follow-up from John Campbell from Stephens.

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John Robert Campbell, Stephens Inc., Research Division - MD [63]

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One quick follow-up here. I wanted to touch on the payments business again, ResidentDirect, I know is a very, very small piece of that business, but it seems like it would make sense maybe for some folks to load a little bit of rent maybe near-term on the credit card. Is that -- are you seeing a mix shift at all there?

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [64]

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We've seen some shift to more credit card. And we've had some owners that have agreed to pay for the fee on it to help their residents. But it's still -- credit card is a pretty small percentage of the total number of transactions that we process. But it has gone up a little bit in the last 2 months.

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Thomas C. Ernst, RealPage, Inc. - Executive VP, CFO & Treasurer [65]

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Yes. I wouldn't characterize it as small, John. I think it's been quite successful. It is a very small part of the overall count, but it's been a successful product for us.

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Stephen T. Winn, RealPage, Inc. - Chairman & CEO [66]

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Yes, ResidentDirect is important. It's not small relative to CLIENTDIRECT. There's CLIENTDIRECT where the client pays for it, and ResidentDirect where the resident pays for it. ResidentDirect is clearly the trend that the industry is moving to.

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Operator [67]

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Thank you. We've reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.