RealPage Reports Third Quarter 2014 Financial Results

Nov 04, 2014

CARROLLTON, Texas--(BUSINESS WIRE)-- RealPage, Inc. (NASDAQ:RP), a leading provider of on demand software and software-enabled services to the rental housing industry, today announced financial results for its third quarter ended September 30, 2014.

"Our financial results for the third quarter improved significantly compared to second quarter financial results," said Steve Winn, Chairman and CEO of RealPage. "Total non-GAAP revenue exceeded our guidance and increased $9.4 million, or 10%, sequentially. This revenue growth was primarily driven by our property management and resident management solutions as well as our renter's insurance revenue returning to more normalized levels. In addition, new sales bookings accelerated both sequentially and compared to the prior year period, showing initial returns from our investments in sales force expansion and our large pipeline of new products."

Third Quarter 2014 Financial Highlights

  • Non-GAAP total revenue was $104.1 million, an increase of 4% year-over-year, while GAAP total revenue was $104.5 million, an increase of 7% year-over-year;
  • Non-GAAP on demand revenue was $100.4 million, an increase of 5% year-over-year, while GAAP on demand revenue was $100.7 million, an increase of 7% year-over-year;
  • Adjusted EBITDA was $16.3 million, a decrease of 31% year-over-year;
  • Non-GAAP net income was $6.5 million, or $0.08 per diluted share, a year-over-year decrease of 46% and 50%, respectively; and
  • GAAP net loss was $3.3 million, or $0.04 per diluted share, compared to GAAP net income of $12.9 million, or $0.17 per diluted share, in the prior year quarter.

Financial Outlook

RealPage management expects to achieve the following results during its fourth quarter ended December 31, 2014:

  • Non-GAAP total revenue is expected to be in the range of $103.0 million to $105.0 million;
  • Adjusted EBITDA is expected to be in the range of $16.0 million to $17.0 million; and
  • Non-GAAP net income per diluted share is expected to be in the range of $0.08 to $0.09.

RealPage management expects to achieve the following results during its calendar year ended December 31, 2014:

  • Non-GAAP total revenue is expected to be in the range of $403.8 million to $405.8 million;
  • Adjusted EBITDA is expected to be in the range of $69.3 million to $70.3 million; and
  • Non-GAAP net income per diluted share is expected to be in the range of $0.38 to $0.39.

Please note that the above statements are forward looking and that Non-GAAP total revenue includes an adjustment for the effect of acquisition-related and other deferred revenue. In addition, the above statements also include the impact of acquisitions. Actual results may differ materially. Please reference the information under the caption "Non-GAAP Financial Measures" as well as reconciliation tables of GAAP financial measures to non-GAAP financial measures as set forth in this press release.

Conference Call and Webcast

The company will host a conference call on November 4, 2014 at 5 p.m. EDT to discuss its financial results. Participants are encouraged to listen to the presentation via a live Web broadcast at http://www.realpage.com on the Investor Relations section. In addition, a live dial-in is available domestically at 866-743-9666 and internationally at 760-298-5103. A replay will be available at 855-859-2056 or 404-537-3406, passcode 27660982, until November 10, 2014.

About RealPage

RealPage is a leading provider of cloud-based software and software-enabled services to the rental housing industry. We have created an ecosystem of integrated solutions that monetize transactions between owners, managers, residents, prospects and industry suppliers primarily through subscription based arrangements. These transactions originate from a central repository of real-time data for almost 10 million rental households. Our solutions enable property owners to increase revenue, decrease expense, and reduce risk so that they can outperform their peers. Founded in 1998 and headquartered in Carrollton, Texas, RealPage currently serves over 10,000 clients worldwide from offices in North America, Europe and Asia. For more information about the company, visit www.realpage.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains "forward-looking" statements relating to RealPage, Inc.'s expected, possible or assumed future results. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements that are not historical facts and may be identified by terms such as "expects," "believes," "plans," or similar expressions and the negatives of those terms. Those forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The Company may be required to revise its results upon finalizing its review of third quarter results, which could cause or contribute to such differences. Additional factors that could cause or contribute to such differences include, but are not limited to, the following: (a) the possibility that general economic conditions, including leasing velocity or uncertainty cause information technology spending, particularly in the rental housing industry, to be reduced or purchasing decisions to be delayed; (b) an increase in insurance claims; (c) an increase in customer cancellations; (d) the inability to increase sales to existing customers and to attract new customers; (e) RealPage, Inc.'s failure to integrate acquired businesses and any future acquisitions successfully; (f) the timing and success of new product introductions by RealPage, Inc. or its competitors; (g) changes in RealPage, Inc.'s pricing policies or those of its competitors; (h) litigation; (i) inability to complete the integration of our LeaseStar products and deliver enhanced functionality on a timely basis; (j) the ability to enable margin expansion; and (k) such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by RealPage Inc., including its Quarterly Report on Form 10-Q previously filed with the SEC on August 8, 2014. All information provided in this release is as of the date hereof and RealPage Inc. undertakes no duty to update this information except as required by law.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. These measures differ from GAAP in that they include acquisition-related and other deferred revenue and exclude amortization of intangible assets, stock-based compensation expenses, any impact related to the Yardi litigation (including related insurance litigation and settlement costs), and acquisition related expenses (including any purchase accounting adjustments) and include income taxes at a sustainable effective rate, which excludes the reversal of valuation allowances due to expected or realization of deferred tax assets.

We define non-GAAP total revenue as total revenue plus acquisition-related and other deferred revenue adjustment. We also define non-GAAP on demand revenue as on demand revenue plus acquisition-related and other deferred revenue adjustment. Non-GAAP net income is defined as net (loss) income plus acquisition-related and other deferred revenue adjustment, amortization of intangible assets, stock-based compensation expense, acquisition-related expense, any impact related to Yardi litigation (including related insurance litigation and settlement costs), loss on disposal of assets, and an adjustment to income tax expense (benefit) to reflect our effective tax rate.

We define Adjusted EBITDA as net (loss) income plus acquisition-related and other deferred revenue adjustments, depreciation and asset impairment, loss on sale of assets, amortization of intangible assets, net interest expense, income tax expense (benefit), stock-based compensation expense, any impact related to Yardi litigation (including related insurance litigation and settlement costs), and acquisition-related expenses.

We believe that the use of Adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

  • Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations and facilitates comparisons with our peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results;
  • it is useful to exclude certain non-cash charges, such as depreciation and asset impairment, amortization of intangible assets and stock-based compensation and non-core operational charges, such as acquisition-related expenses and any impact related to the Yardi litigation (including related insurance litigation and settlement costs), from Adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and these expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously acquired tangible and intangible assets or the timing of new stock-based awards, as the case may be; and
  • it is useful to include deferred revenue written down for GAAP purposes under purchase accounting rules and revenue deferred due to a lack of historical experience determining the settlement of the contractual obligation in order to appropriately measure the underlying performance of our business operations in the period of activity and associated expense.

We use Adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part of our overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

We do not place undue reliance on Adjusted EBITDA as our only measure of operating performance. Adjusted EBITDA should not be considered as a substitute for other measures of liquidity or financial performance reported in accordance with GAAP. There are limitations to using non-GAAP financial measures, including that other companies may calculate these measures differently than we do, that they do not reflect our capital expenditures or future requirements for capital expenditures and that they do not reflect changes in, or cash requirements for, our working capital. We compensate for the inherent limitations associated with using Adjusted EBITDA measures through disclosure of these limitations, presentation of our financial statements in accordance with GAAP and reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net (loss) income.

 
Condensed Consolidated Balance Sheets
At September 30, 2014 and December 31, 2013
(unaudited, in thousands except share data)
           
September 30, December 31,
  2014         2013  
Assets
Current assets:
Cash and cash equivalents $ 30,670 $ 34,502
Restricted cash 81,049 71,941

Accounts receivable, less allowance for doubtful accounts of $2,116 and $914 at September 30, 2014 and December 31, 2013, respectively

63,731 66,635
Deferred tax asset, net 2,868 3,284
Other current assets   9,566         7,453  
Total current assets 187,884 183,815
Property, equipment and software, net 71,464 54,775
Goodwill 193,468 152,422
Identified intangible assets, net 105,192 108,815
Deferred tax asset, net 4,553 -
Other assets   5,023         3,386  
Total assets $ 567,584       $ 503,213  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 17,444 $ 11,978
Accrued expenses and other current liabilities 25,995 23,122
Current portion of deferred revenue 68,321 66,085
Customer deposits held in restricted accounts   81,015         71,910  
Total current liabilities 192,775 173,095
Deferred revenue 6,764 5,671
Deferred tax liability, net - 1,379
Revolving credit facility 38,572 -
Other long-term liabilities   14,931         8,564  
Total liabilities 253,042 188,709
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized and zero shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
- -
Common stock, $0.001 par value per share: 125,000,000 shares authorized, 82,826,622 and 80,511,791 shares issued and 78,849,752 and 78,433,626 shares outstanding at September 30, 2014 and December 31, 2013, respectively
 
83 81
Additional paid-in capital 422,414 390,854
Treasury stock, at cost: 3,976,870 and 2,078,165 shares at September 30, 2014 and December 31, 2013, respectively
(32,305 ) (11,183 )
Accumulated deficit (75,470 ) (65,086 )
Accumulated other comprehensive loss   (180 )       (162 )
Total stockholders' equity   314,542         314,504  
Total liabilities and stockholders' equity $ 567,584       $ 503,213  
 

                   
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2014 and 2013
(unaudited, in thousands except per share data)
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Revenue:
On demand $ 100,747 $ 94,084 $ 289,361 $ 270,231
On premise 755 838 2,446 2,799
Professional and other   3,034     3,149     8,280     8,473  
Total revenue 104,536 98,071 300,087 281,503
Cost of revenue   46,311     38,111     128,353     110,815  
Gross profit 58,225 59,960 171,734 170,688
Operating expense:
Product development 17,528 13,232 48,310 36,997
Sales and marketing 29,949 25,166 83,970 71,992
General and administrative   15,443     15,554     53,191     44,880  
Total operating expense   62,920     53,952     185,471     153,869  
Operating (loss) income (4,695 ) 6,008 (13,737 ) 16,819
Interest expense and other income, net   (345 )   (236 )   (771 )   (921 )
(Loss) income before income taxes (5,040 ) 5,772 (14,508 ) 15,898
Income tax benefit   (1,783 )   (7,114 )   (4,124 )   (2,616 )
Net (loss) income $ (3,257 ) $ 12,886   $ (10,384 ) $ 18,514  
 
Net (loss) income per share
Basic $ (0.04 ) $ 0.17 $ (0.13 ) $ 0.25
Diluted $ (0.04 ) $ 0.17 $ (0.13 ) $ 0.24

Weighted average shares used in computing net (loss) income per share

Basic 77,280 75,234 77,075 74,597
Diluted 77,280 76,347 77,075 75,900
                               
 
(1)Includes stock-based compensation Three Months Ended Nine Months Ended
expense as follows: September 30, September 30,
  2014     2013     2014     2013  
Cost of revenue 1,141 $ 785 3,014 $ 2,211
Product development 2,707 1,271 6,763 3,123
Sales and marketing 3,774 2,686 10,018 7,891
General and administrative   1,914     2,994     8,999     7,817  
$ 9,536   $ 7,736   $ 28,794   $ 21,042  
 

           
Condensed Consolidated Statements of Cash Flows
For the Three and Nine Months Ended September 30, 2014 and 2013
(unaudited, in thousands)
     
Three Months Ended Nine Months Ended
September 30, September 30,
  2014       2013     2014       2013  
Cash flows from operating activities:

Net (loss) income

$ (3,257 ) $ 12,886 $ (10,384 ) $ 18,514

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 10,962 7,605 30,533 22,823
Deferred tax benefit (1,666 ) (7,919 ) (5,516 ) (4,873 )
Stock-based compensation 9,536 7,736 28,794 21,042
Loss on disposal of assets 16 37 36 310
Acquisition-related contingent consideration 630 (145 ) 564 1,300
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
(8,915 ) (3,174 ) 6,027 (7,507 )
           
Net cash provided by operating activities   7,306       17,026     50,054       51,609  
Cash flows from investing activities:
Purchases of property, equipment and software, net (9,990 ) (8,797 ) (29,125 ) (22,190 )
Acquisition of businesses, net of cash acquired 111 (146 ) (41,942 ) (10,342 )
Intangible asset additions   -       -     -       (600 )
Net cash used by investing activities   (9,879 )     (8,943 )   (71,067 )     (33,132 )
Cash flows from financing activities:
Payments on and proceeds from debt, net 12,440 (138 ) 37,160 (10,411 )
Payments of deferred acquisition-related consideration (3,259 ) (1,059 ) (4,007 ) (1,545 )
Issuance of common stock 152 3,861 5,168 6,854
Purchase of treasury stock   (15,298 )     (1,098 )   (21,122 )     (3,163 )

Net cash (used in) provided by financing activities

  (5,965 )     1,566     17,199       (8,265 )

Net (decrease) increase in cash and cash equivalents

(8,538 ) 9,649 (3,814 ) 10,212
Effect of exchange rate on cash (9 ) 12 (18 ) (36 )
Cash and cash equivalents:
Beginning of period   39,217       34,319     34,502       33,804  
End of period $ 30,670     $ 43,980   $ 30,670     $ 43,980  
 

               
Reconciliation of GAAP to Non-GAAP Measures
For the Three and Nine Months Ended September 30, 2014 and 2013
(unaudited, in thousands)
     
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Non-GAAP revenue:
Revenue (GAAP) $ 104,536 $ 98,071 $ 300,087 $ 281,503
Acquisition-related and other deferred revenue   (392 )   1,793     725     1,795  
Non-GAAP revenue $ 104,144   $ 99,864   $ 300,812   $ 283,298  
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Adjusted gross profit:
Gross profit (GAAP) $ 58,225 $ 59,960 $ 171,734 $ 170,688
Acquisition-related and other deferred revenue (392 ) 1,793 725 1,795
Depreciation 2,311 1,480 6,182 4,767
Amortization of intangible assets 2,982 1,656 7,852 5,651
Stock-based compensation expense   1,141     785     3,014     2,211  
Adjusted gross profit $ 64,267   $ 65,674   $ 189,507   $ 185,112  
 
Adjusted gross profit margin 61.7 % 65.8 % 63.0 % 65.3 %
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Adjusted EBITDA:
Net (loss) income (GAAP) $ (3,257 ) $ 12,886 $ (10,384 ) $ 18,514
Acquisition-related and other deferred revenue (392 ) 1,793 725 1,795
Depreciation, asset impairment and loss on disposal of asset 5,121 3,400 13,911 10,486
Amortization of intangible assets 5,857 4,242 16,658 12,647
Interest expense, net 349 236 780 1,199
Income tax benefit (1,783 ) (7,114 ) (4,124 ) (2,616 )
Litigation-related expense 39 278 4,884 331
Stock-based compensation expense 9,536 7,736 28,794 21,042
Acquisition related expense   860     288     2,098     2,113  
Adjusted EBITDA $ 16,330   $ 23,745   $ 53,342   $ 65,511  
 
Adjusted EBITDA margin 15.7 % 23.8 % 17.7 % 23.1 %
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Non-GAAP total product development:
Product development (GAAP) $ 17,528 $ 13,232 $ 48,310 $ 36,997
Less: Amortization of intangible assets - - - 1
Stock-based compensation expense   2,707     1,271     6,763     3,123  
Non-GAAP total product development: $ 14,821   $ 11,961   $ 41,547   $ 33,873  
 
Non-GAAP total product development as % of non-GAAP revenue: 14.2 % 12.0 % 13.8 % 12.0 %
 

               
Reconciliation of GAAP to Non-GAAP Measures
For the Three and Nine Months Ended September 30, 2014 and 2013
(unaudited, in thousands)
   
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Non-GAAP total sales and marketing:
Sales and marketing (GAAP) $ 29,949 $ 25,166 $ 83,970 $ 71,992
Less: Amortization of intangible assets 2,875 2,586 8,614 6,996
Stock-based compensation expense   3,774     2,686     10,018     7,891  
Non-GAAP total sales and marketing: $ 23,300   $ 19,894   $ 65,338   $ 57,105  
 
Non-GAAP total sales and marketing as % of non-GAAP revenue: 22.4 % 19.9 % 21.7 % 20.2 %
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Non-GAAP total general and administrative:
General and administrative (GAAP) $ 15,443 $ 15,554 $ 53,191 $ 44,880
Less: Amortization of intangible assets - - 192 -

Acquisition related expense

860 288 2,098 2,113
Stock-based compensation expense 1,914 2,994 8,999 7,817
Litigation related expense   39     278     4,884     331  
Non-GAAP total general and administrative: $ 12,630   $ 11,994   $ 37,018   $ 34,619  
 
Non-GAAP total general and administrative as % of non-GAAP revenue: 12.1 % 12.0 % 12.3 % 12.2 %
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Non-GAAP total operating expense:
Operating expense (GAAP) $ 62,920 $ 53,952 $ 185,471 $ 153,869
Less: Amortization of intangible assets 2,875 2,586 8,806 6,997
Acquisition related expense

 

860 288 2,098 2,113
Stock-based compensation expense 8,395 6,951 25,780 18,831
Litigation related expense   39     278     4,884     331  
Non-GAAP total operating expense: $ 50,751   $ 43,849   $ 143,903   $ 125,597  
 
Non-GAAP total operating expense as % of non-GAAP revenue: 48.7 % 43.9 % 47.8 % 44.3 %
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Non-GAAP operating income:
Operating (loss) income (GAAP) $ (4,695 ) $ 6,008 $ (13,737 ) $ 16,819
Acquisition-related and other deferred revenue (392 ) 1,793 725 1,795
Amortization of intangible assets 5,857 4,242 16,658 12,647
Stock-based compensation expense 9,536 7,736 28,794 21,042
Acquisition related expense 860 288 2,098 2,113
Litigation related expense   39     278     4,884     331  
Non-GAAP operating income $ 11,205   $ 20,345   $ 39,422   $ 54,747  
 
Non-GAAP operating margin 10.8 % 20.4 % 13.1 % 19.3 %
 

               
Reconciliation of GAAP to Non-GAAP Measures
For the Three and Nine Months Ended September 30, 2014 and 2013
(unaudited, in thousands except per share data)
     
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Non-GAAP net income:
Net (loss) income (GAAP) $ (3,257 ) $ 12,886 $ (10,384 ) $ 18,514
 
Acquisition-related and other deferred revenue (392 ) 1,793 725 1,795
Amortization of intangible assets 5,857 4,242 16,658 12,647
Stock-based compensation expense 9,536 7,736 28,794 21,042
Acquisition related expense 860 288 2,098 2,113
Litigation related expense 39 278 4,884 331
Loss on disposal of assets   16     37     36     310  
Subtotal of add-back items 15,916 14,374 53,195 38,238
 
Tax impact of add-back items(1) (6,366 ) (5,750 ) (21,278 ) (15,295 )
Tax expense resulting from applying effective tax rate(2)   233     (9,423 )   1,679     (8,975 )
Non-GAAP net income $ 6,526 $ 12,087 $ 23,212 $ 32,482
 
Non-GAAP net income per share - diluted $ 0.08 $ 0.16 $ 0.30 $ 0.43
 
Weighted average shares - diluted 77,280 76,347 77,075 75,900
Weighted average effect of dilutive securities   494     -     727     -  
Non-GAAP weighted average shares - diluted 77,774 76,347 77,802 75,900
                               

(1)Reflects the removal of the tax benefit associated with the amortization of intangible assets, stock-based compensation expense, acquisition related deferred revenue adjustment and acquisition related expense.

(2)Represents adjusting to a normalized effective tax rate of 40%.
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013     2014     2013  
Annualized Non-GAAP on demand revenue per average on demand unit:
On demand revenue (GAAP) $ 100,747 $ 94,084 $ 289,361 $ 270,231
Acquisition-related and other deferred revenue   (392 )   1,793     725     1,795  
Non-GAAP on demand revenue $ 100,355 $ 95,877 $ 290,086 $ 272,026
 
Ending on demand units 9,496 8,730 9,496 8,730
Average on demand units 9,434 8,673 9,305 8,527
       
Annualized Non-GAAP on demand revenue per average on demand unit $ 42.55   $ 44.22   $ 41.57   $ 42.53  
 
Annual customer value of on demand revenue(1) $ 404,055 $ 386,041
                               

(1)This metric represents management's estimate for the current annual run-rate value of on demand customer relationships. This metric is calculated by multiplying ending on demand units times annualized Non-GAAP on demand revenue per average on demand unit for the periods presented.

RealPage, Inc.
Investor Relations:
Rhett Butler, 972-820-3773
rhett.butler@realpage.com

Source: RealPage, Inc.

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Phone: (972) 820-3773
Email: ir@realpage.com

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