RealPage Reports Fourth Quarter and Full Year 2018 Financial Results

RICHARDSON, Texas--(BUSINESS WIRE)-- RealPage, Inc. (NASDAQ:RP), a leading global provider of software and data analytics to the real estate industry, today announced financial results for the fourth quarter and year ended December 31, 2018.

Fourth Quarter 2018 Financial Highlights

  • GAAP total revenue of $227.0 million, an increase of 21% year-over-year;
  • Net income of $6.3 million, or $0.07 in net income per diluted share, a year-over-year increase of 130% and 127%, respectively;
  • Adjusted EBITDA of $60.8 million, an increase of 30% year-over-year; and
  • Non-GAAP net income of $36.6 million, or $0.39 in non-GAAP net income per diluted share, a year-over-year increase of 68% and 50%, respectively.

Full Year 2018 Financial Highlights

  • GAAP total revenue of $869.5 million, an increase of 30% year-over-year;
  • Net income of $34.7 million, or $0.38 in net income per diluted share, exhibiting significant year-over-year growth;
  • Adjusted EBITDA of $231.2 million, an increase of 41% year-over-year; and
  • Non-GAAP net income of $135.5 million, or $1.51 in non-GAAP net income per diluted share, a year-over-year increase of 78% and 62%, respectively.

Comments on the News

“Our 2018 financial performance was impressive,” said Steve Winn, Chairman and CEO of RealPage. “The strong financial performance reflects continued execution of our strategy to emphasize strategic platform sales over the sales of individual products. Our new Unity Platform makes this much easier and we are experiencing significant success with suite sales achieving another record high new sales bookings level for the fourth quarter and the full year.”

“2018 financial performance exhibited another year of strong growth as total revenue grew 30%, while adjusted EBITDA and cash flow from operations each grew significantly,” said Tom Ernst, CFO and Treasurer of RealPage. “I’m excited by our future and the caliber of the team here at RealPage. Three areas of focus for 2019 will be to further embed data driven science into all of our products and internal processes, refine our growing capabilities in curating the innovation lifecycle and simplify internal processes across the company to reduce the time from the sale of a suite to the full deployment of that suite.”

2019 Financial Outlook

RealPage management expects to achieve the following results during the first quarter ending March 31, 2019:

  • GAAP total revenue is expected to be in the range of $232.8 million to $234.8 million;
  • GAAP net income per diluted share is expected to be in the range of $0.09 to $0.11;
  • Non-GAAP total revenue is expected to be in the range of $233.0 million to $235.0 million;
  • Adjusted EBITDA is expected to be in the range of $64.0 million to $66.0 million;
  • Non-GAAP net income per diluted share is expected to be in the range of $0.39 to $0.41;
  • Non-GAAP diluted weighted average shares outstanding are expected to be approximately 93.9 million.

RealPage management expects to achieve the following results during the calendar year ending December 31, 2019:

  • GAAP total revenue is expected to be in the range of $980.0 million to $1.0 billion;
  • GAAP net income per diluted share is expected to be in the range of $0.45 to $0.55;
  • Non-GAAP total revenue is expected to be in the range of $980.0 million to $1.0 billion;
  • Adjusted EBITDA is expected to be in the range of $275.0 million to $285.0 million;
  • Non-GAAP net income per diluted share is expected to be in the range of $1.70 to $1.79;
  • Non-GAAP diluted weighted average shares outstanding are expected to be approximately 94.5 million.

Conference Call Information; Presentation Slides

The Company will host a conference call at 5:00 p.m. EDT today to discuss its financial results. Participants are encouraged to listen to the presentation via a live web broadcast and view presentation slides at https://78449.themediaframe.com/dataconf/productusers/rlpg/mediaframe/28931/indexl.html. In addition, a live dial-in is available domestically at 877-407-9128 and internationally at 201-493-6752. A replay will be available at 877-660-6853 or 201-612-7415, passcode 13687894, until March 25, 2019.

About RealPage

RealPage is a leading global provider of software and data analytics to the real estate industry. Clients use our platform to improve operating performance and increase capital returns. Founded in 1998 and headquartered in Richardson, Texas, RealPage currently serves over 12,200 clients worldwide from offices in North America, Europe and Asia. For more information about the company, visit https://www.realpage.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains “forward-looking” statements relating to RealPage, Inc.’s strategy, goals, future focus areas, and expected, possible or assumed future results, including its financial outlook for the first quarter and calendar year ending December 31, 2019, continued execution and success of its strategy to emphasize suite sales over the sales of individual products, and the benefits of its Unity Platform, its areas of focus in 2019 related to embedding data driven science into its products and internal processes, growing capabilities in curating the innovation lifecycle, and simplifying internal processes to reduce the time from the sale of a suite to full deployment. 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. These 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 contained herein upon finalizing its review of quarterly and full-year results and completion of the annual audit, 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, could 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 client cancellations; (d) the inability to increase sales to existing clients and to attract new clients; (e) RealPage’s failure to integrate recent or future acquired businesses successfully or to achieve expected synergies, including the completed acquisitions of ClickPay, LeaseLabs and Rentlytics; (f) the timing and success of new product introductions by RealPage or its competitors; (g) changes in RealPage’s pricing policies or those of its competitors; (h) legal or regulatory proceedings; (i) the inability to achieve revenue growth or to enable margin expansion; (j) changes in RealPage’s estimates with respect to its long-term corporate tax rate or any other impact from the Tax Cuts and Jobs Act; 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, including its Annual Report on Form 10-K previously filed with the SEC on March 1, 2018 and its Quarterly Report on Form 10-Q previously filed with the SEC on November 6, 2018. All information provided in this release is as of the date hereof and RealPage undertakes no duty to update this information except as required by law.

Explanation of Non-GAAP Financial Measures

The company reports its financial results in accordance with accounting principles generally accepted in the United States of America, or GAAP. However, the company believes that, in order to properly understand its short-term and long-term financial, operational and strategic trends, it may be helpful for investors to exclude certain non-cash or non-recurring items when used as a supplement to financial performance measures in accordance with GAAP. These non-cash or non-recurring items result from facts and circumstances that vary in both frequency and impact on continuing operations. The company also uses results of operations excluding such items to evaluate the operating performance of RealPage and compare it against prior periods, make operating decisions, determine executive compensation, and serve as a basis for long-term strategic planning. These non-GAAP financial measures provide the company with additional means to understand and evaluate the operating results and trends in its ongoing business by eliminating certain non-cash expenses and other items that RealPage believes might otherwise make comparisons of its ongoing business with prior periods more difficult, obscure trends in ongoing operations, reduce management’s ability to make useful forecasts, or obscure the ability to evaluate the effectiveness of certain business strategies and management incentive structures. In addition, the company also believes that investors and financial analysts find this information to be helpful in analyzing the company’s financial and operational performance and comparing this performance to the company’s peers and competitors.

The company defines “Non-GAAP Total Revenue” as total revenue plus acquisition-related and other deferred revenue adjustments. The company believes 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 its business operations in the period of activity and associated expense. Further, the company believes this measure is useful to investors as a way to evaluate the company’s ongoing performance because it provides a more accurate depiction of on demand revenue arising from our strategic acquisitions.

The company defines “Adjusted Gross Profit” as gross profit, plus (1) acquisition-related and other deferred revenue adjustments, (2) depreciation, (3) amortization of product technologies, and (4) stock-based expense. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s ability to generate income from ongoing business operations.

The company defines “Adjusted EBITDA” as net income (loss), plus (1) acquisition-related and other deferred revenue adjustments, (2) depreciation, asset impairment, and the loss on disposal of assets, (3) amortization of product technologies and intangible assets, (4) loss due to cyber incident, net of recoveries, (5) acquisition-related (income) expense, (6) costs related to the Hart-Scott-Rodino review process, (7) interest expense, net, (8) income tax expense (benefit), and (9) stock-based expense. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s ability to generate income from ongoing business operations.

The company defines “Non-GAAP Product Development Expense” as product development expense, excluding stock-based expense. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s ongoing expenditures related to product innovation.

The company defines “Non-GAAP Sales and Marketing Expense” as sales and marketing expense, excluding (1) asset impairment, and (2) stock-based expense. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s ongoing expenditures related to its sales and marketing strategies.

The company defines “Non-GAAP General and Administrative Expense” as general and administrative expense, excluding (1) loss on disposal of assets, (2) loss due to cyber incident, net of recoveries, (3) acquisition-related (income) expense, (4) costs related to the Hart-Scott-Rodino review process, and (5) stock-based expense. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s underlying expense structure to support corporate activities and processes.

The company defines “Non-GAAP Operating Expense” as operating expense, excluding (1) asset impairment and loss on disposal of assets, (2) amortization of intangible assets, (3) loss due to cyber incident, net of recoveries, (4) acquisition-related (income) expense, (5) costs related to the Hart-Scott-Rodino review process, and (6) stock-based expense. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s underlying expense structure to support ongoing operations.

The company defines “Non-GAAP Operating Income” as operating income, plus (1) acquisition-related and other deferred revenue adjustments, (2) asset impairment and loss on disposal of assets, (3) amortization of product technologies and intangible assets, (4) loss due to cyber incident, net of recoveries, (5) acquisition-related (income) expense, (6) costs related to the Hart-Scott-Rodino review process, and (7) stock-based expense. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s ability to generate income from ongoing business operations.

The company defines “Non-GAAP Net Income” as net income (loss), plus (1) income tax (benefit) expense, (2) acquisition-related and other deferred revenue adjustments, (3) asset impairment and loss on disposal of assets, (4) amortization of product technologies and intangible assets, (5) loss due to cyber incident, net of recoveries, (6) acquisition-related (income) expense, (7) costs related to the Hart-Scott-Rodino review process, (8) amortization of convertible note discount, and (9) stock-based expense, less (10) provision for income tax expense based on an assumed rate in order to approximate the company’s long-term effective corporate tax rate. The company defines “Non-GAAP Net Income per Diluted Share” as Non-GAAP Net Income divided by Non-GAAP Weighted Average Diluted Shares Outstanding. The company believes that investors and financial analysts find these non-GAAP financial measures to be useful in analyzing the company’s financial and operational performance, comparing this performance to the company’s peers and competitors, and understanding the company’s ability to generate income from ongoing business operations.

The company defines "Non-GAAP Weighted Average Diluted Shares Outstanding" as weighted average diluted shares outstanding excluding the impact of shares that are issuable upon conversions of our convertible notes. It is the current intent of the company to settle conversions of the convertible notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of our common stock. We exclude these shares that are issuable upon conversions of our convertible notes because we expect that the dilution from such shares will be offset by the convertible note hedge transactions entered into in May 2017 in connection with the issuance of the convertible notes.

The company defines “Non-GAAP On Demand Revenue” as total on demand revenue plus acquisition-related and other deferred revenue adjustments. The company believes 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 the company’s business operations in the period of activity and associated expense. Further, the company believes that investors and financial analysts find this measure to be useful in evaluating the company’s ongoing performance because it provides a more accurate depiction of on demand revenue arising from our strategic acquisitions.

The company defines “Ending On Demand Units” as the number of rental housing units managed by our clients with one or more of our on demand software solutions at the end of the period. We use ending on demand units to measure the success of our strategy of increasing the number of rental housing units managed with our on demand software solutions. Property unit counts are provided to us by our customers as new sales orders are processed. Property unit counts may be adjusted periodically as information related to our clients’ properties is updated or supplemented, which could result in adjustments to the number of units previously reported.

The company defines “Average On Demand Units” as the average of the beginning and ending on demand units for each quarter in the period presented. The company’s management monitors this metric to measure its success in increasing the number of on demand software solutions utilized by our clients to manage their rental housing units, our overall revenue, and profitability.

The company defines “ACV,” or Annual Client Value, as management’s estimate of the annual value of the company’s on demand revenue contracts at a point in time. The company’s management monitors this metric to measure its success in increasing the number of on demand units, and the amount of software solutions utilized by its clients to manage their rental housing units.

The company defines “RPU,” or Revenue Per Unit, as ACV divided by ending on demand units. The company monitors this metric to measure its success in increasing the penetration of on demand software solutions utilized by its clients to manage their rental housing units.

The company excludes or adjusts each of the items identified below from the applicable non-GAAP financial measure referenced above for the reasons set forth with respect to each excluded item:

  • Non-GAAP tax rate – In 2017, the company used a 40.0% tax rate in order to approximate the company’s long-term effective corporate tax rate. The GAAP tax rate includes certain tax items which may include, but are not limited to: income tax expenses or benefits that are not related to ongoing business operations in the current year; unusual or infrequently occurring items; benefits from stock compensation deductions for tax purposes that exceed the stock compensation expense recognized for GAAP; tax adjustments associated with fluctuations in foreign currency re-measurement; certain changes in estimates of tax matters related to prior fiscal years; certain changes in the realizability of deferred tax assets and liabilities; and changes in tax law. In 2018 and for 2019 guidance purposes, the company uses a Non-GAAP tax rate of approximately 26%, as a result of the recently enacted Tax Cuts and Jobs Act legislation, to approximate the company’s long-term effective corporate tax rate. We believe excluding these items assists investors and analysts in understanding the tax provision and the effective tax rate related to ongoing operations.
  • Acquisition-related and other deferred revenue – These items are included to reflect 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 the company’s business operations in the period of activity and associated expense.
  • Asset impairment and loss on disposal of assets – These items comprise gains (losses) on the disposal and impairment of long-lived assets and impairment of indefinite-lived intangible assets, which are not reflective of the company’s ongoing operations. We believe exclusion of these items facilitates a more accurate comparison of the company’s results of operations between periods.
  • Depreciation of long-lived assets - Long-lived assets are depreciated over their estimated useful lives in a manner reflecting the pattern in which the economic benefit is consumed. Management is limited in its ability to change or influence these charges after the asset has been acquired and placed in service. We do not believe that depreciation expense accurately reflects the performance of our ongoing operations for the period in which the charges are incurred, and are therefore not considered by management in making operating decisions.
  • Amortization of product technologies and intangible assets – These items are amortized over their estimated useful lives and generally cannot be changed or influenced by the company after initial capitalization. Accordingly, these items are not considered by the company in making operating decisions. The company does not believe such charges accurately reflect the performance of its ongoing operations for the period in which such charges are incurred.
  • Loss due to cyber incident, net of recoveriesThis item relates to losses, net of recoveries, arising from the May 2018 incident in which the company was the subject of a targeted email phishing campaign. The company believes this loss is not reflective of its ongoing operations and that exclusion of this item facilitates a more accurate comparison of the company’s results of operations between periods.
  • Acquisition-related (income) expense – These items consist of direct costs incurred in our business acquisition transactions and the impact of changes in the fair value of acquisition-related contingent consideration obligations. We believe exclusion of these items facilitates a more accurate comparison of the results of the company’s ongoing operations across periods and eliminates volatility related to changes in the fair value of acquisition-related contingent consideration obligations.
  • Costs related to the Hart-Scott-Rodino review process – This item relates to the company's Hart-Scott-Rodino Antitrust Improvements Act review process regarding the completed acquisitions of On-Site and LRO in 2017 and LeaseLabs in 2018. The company believes that these significant legal costs are not reflective of its ongoing operations or its normal acquisition activity.
  • Amortization of the convertible note discount – This items consists of non-cash interest expense related to the amortization of the discount recognized on the convertible notes issued in May 2017. Management excludes this item as it is not indicative of the company’s ongoing operating performance.
  • Stock-based expense – This item is excluded because these are non-cash expenditures that the company does not consider part of ongoing operating results when assessing the performance of our business, and also because the total amount of the expenditure is partially outside of its control because it is based on factors such as stock price, volatility, and interest rates, which may be unrelated to the company’s performance during the period in which the expenses are incurred.
Consolidated Balance Sheets
(in thousands, except share and per share data)
 
 
December 31, December 31,
2018 2017
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 228,159 $ 69,343
Restricted cash 154,599 96,002
Accounts receivable, less allowance for doubtful accounts of $8,850 and $3,951 at December 31, 2018 and 2017, respectively 123,596 124,505
Prepaid expenses 19,214 12,107
Other current assets   15,185   6,622
Total current assets 540,753 308,579
Property, equipment, and software, net 153,528 148,428
Goodwill 1,053,119 751,052
Intangible assets, net 287,378 252,337
Deferred tax assets, net 42,602 44,887
Other assets   20,393   11,010
Total assets $ 2,097,773 $ 1,516,293
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 25,312 $ 26,733
Accrued expenses and other current liabilities 95,482 79,379
Current portion of deferred revenue 120,704 116,622
Current portion of term loans 16,133 14,116
Customer deposits held in restricted accounts   154,601   96,057
Total current liabilities 412,232 332,907
Deferred revenue 4,902 5,538
Revolving facility - 50,000
Term loans, net 287,582 303,261
Convertible notes, net 292,843 281,199
Other long-term liabilities   37,190   41,513
Total liabilities 1,034,749 1,014,418
Stockholders’ equity:
Common stock, $0.001 par value: 250,000,000 and 125,000,000 shares authorized, 95,991,162 and 87,153,085 shares issued and 93,650,127 and 83,180,401 shares outstanding at December 31, 2018 and 2017, respectively 96 87
Additional paid-in capital 1,187,683 637,851
Treasury stock, at cost: 2,341,035 and 3,972,684 shares at December 31, 2018 and 2017, respectively (65,470) (61,260)
Accumulated deficit (58,793) (75,046)
Accumulated other comprehensive (loss) income   (492)   243
Total stockholders’ equity   1,063,024   501,875
Total liabilities and stockholders’ equity $ 2,097,773 $ 1,516,293

Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017  
Revenue:
On demand $ 218,051 $ 180,104 $ 833,709 $ 642,622
Professional and other   8,923     7,576     35,771     28,341  
Total revenue 226,974 187,680 869,480 670,963
Cost of revenue(1) 88,063 69,135 328,382 258,135
Amortization of product technologies   9,429     7,413     35,797     22,163  
Gross profit   129,482     111,132     505,301     390,665  
Operating expenses:
Product development(1) 29,772 25,890 118,525 89,452
Sales and marketing(1) 45,084 37,925 166,607 140,473
General and administrative(1) 32,638 30,350 118,208 112,975
Amortization of intangible assets   9,588     7,154     35,911     17,755  
Total operating expenses   117,082     101,319     439,251     360,655  
Operating income 12,400 9,813 66,050 30,010
Interest expense and other, net   (6,746 )   (6,220 )   (31,750 )   (14,769 )
Income before income taxes   5,654     3,593     34,300     15,241  
Income tax (benefit) expense   (618 )   24,458     (425 )   14,864  
Net income (loss) $ 6,272   $ (20,865 ) $ 34,725   $ 377  
 
Net income (loss) per share attributable to common stockholders:
Basic $ 0.07 $ (0.26 ) $ 0.40 $ 0.00
Diluted $ 0.07 $ (0.26 ) $ 0.38 $ 0.00
Weighted average common shares outstanding:
Basic 91,492 80,583 87,290 79,433
Diluted 95,108 80,583 91,531 82,398
                 
 
(1) Includes stock-based expense as follows:
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017  
Cost of revenue $ 1,254 $ 899 $ 4,403 $ 3,842
Product development 2,595 1,992 9,923 8,423
Sales and marketing 4,320 3,351 16,573 14,592
General and administrative   4,980     3,861     19,742     18,978  
$ 13,149   $ 10,103   $ 50,641   $ 45,835  

 
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017  
Cash flows from operating activities:
Net income (loss) $ 6,272 $ (20,865 ) $ 34,725 $ 377
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 26,168 21,332 100,186 67,146
Amortization of debt discount and issuance costs 3,192 2,956 12,464 7,296
Deferred taxes 541 24,602 (2,179 ) 13,791
Stock-based expense 13,149 10,103 50,641 45,835
Asset impairment and loss on disposal of assets 3,294 52 6,733 524
Acquisition-related consideration (522 ) 302 284 684
Customer deposits 63,591 3,765 57,230 3,055
Other changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations   (5,840 )   (7,867 )   (15,277 )   1,555  
Net cash provided by operating activities   109,845     34,380     244,807     140,263  
 
Cash flows from investing activities:
Purchases of property, equipment, and software (13,646 ) (11,176 ) (50,933 ) (49,752 )
Acquisition of businesses, net of cash and restricted cash acquired (48,089 ) (302,360 ) (278,563 ) (649,910 )
Purchase of other investments   -     (200 )   (1,800 )   (200 )
Net cash used in investing activities   (61,735 )   (313,736 )   (331,296 )   (699,862 )
 
Cash flows from financing activities:
Payments on and proceeds from debt, net (4,042 ) 247,571 (65,479 ) 548,730
Payments of acquisition-related consideration (278 ) (418 ) (28,388 ) (8,491 )
Proceeds from public offering, net of underwriters’ discount and offering costs 107 - 441,901 -
Proceeds from exercise of stock options 3,210 5,400 13,163 27,014
Purchase of treasury stock related to stock-based compensation (6,908 ) (9,715 ) (29,030 ) (30,904 )
Purchase of treasury stock under share repurchase program   (28,082 )   -     (28,082 )   -  
Net cash (used in) provided by financing activities   (35,993 )   242,838     304,085     536,349  
Net increase (decrease) in cash and cash equivalents 12,117 (36,518 ) 217,596 (23,250 )
Effect of exchange rate on cash (150 ) (31 ) (183 ) 55
 
Cash, cash equivalents and restricted cash:
Beginning of period   370,791     201,894     165,345     188,540  
End of period $ 382,758   $ 165,345   $ 382,758   $ 165,345  
 

 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO
COMPARABLE GAAP MEASURES
(unaudited, in thousands, except per share data)
         
The following is a reconciliation of the non-GAAP financial measures used by RealPage to describe its financial results determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"). An explanation of these measures is also included under the heading “Explanation of Non-GAAP Financial Measures.”

While the company believes that these non-GAAP financial measures provide useful supplemental information to investors regarding the underlying performance of our business operations, investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies, and the company may utilize other measures to illustrate performance in the future. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP.
 

Non-GAAP Total Revenue

Set forth below is a presentation of the company’s “Non-GAAP Total Revenue.” Please reference the “Explanation of Non-GAAP Financial Measures” section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017
Revenue (GAAP) $ 226,974 $ 187,680 $ 869,480 $ 670,963
Acquisition-related and other deferred revenue   1,056     710     1,890     3,058
Non-GAAP Total Revenue $ 228,030   $ 188,390   $ 871,370   $ 674,021
 

Adjusted Gross Profit

Set forth below is a presentation of the company’s "Adjusted Gross Profit." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017
Gross profit (GAAP) $ 129,482 $ 111,132 $ 505,301 $ 390,665
Acquisition-related and other deferred revenue 1,056 710 1,890 3,058
Depreciation 3,048 2,935 12,072 11,790
Amortization of product technologies 9,429 7,413 35,797 22,163
Stock-based expense   1,254     899     4,403     3,842
Adjusted Gross Profit $ 144,269   $ 123,089   $ 559,463   $ 431,518
 

Adjusted EBITDA

Set forth below is a presentation of the company’s "Adjusted EBITDA." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017
Net income (loss) (GAAP) $ 6,272 $ (20,865 ) $ 34,725 $ 377
Acquisition-related and other deferred revenue 1,056 710 1,890 3,058
Depreciation, asset impairment, and loss on disposal of assets 10,445 6,817 35,211 27,752
Amortization of product technologies and intangible assets 19,017 14,567 71,708 39,918
Loss due to cyber incident, net of recoveries 4,952 - 4,952 -
Acquisition-related (income) expense (257 ) 2,508 2,437 5,557
Costs related to the Hart-Scott-Rodino review process - 2,310 78 11,012
Interest expense, net 6,780 6,335 29,959 15,072
Income tax (benefit) expense (618 ) 24,458 (425 ) 14,864
Stock-based expense   13,149     10,103     50,641     45,835
Adjusted EBITDA $ 60,796   $ 46,943   $ 231,176   $ 163,445

       

Non-GAAP Product Development Expense

Set forth below is a presentation of the company’s "Non-GAAP Product Development Expense." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017   2018   2017
Product development expense (GAAP) $ 29,772 $ 25,890 $ 118,525 $ 89,452
Less: Stock-based expense   2,595     1,992   9,923   8,423
Non-GAAP Product Development Expense $ 27,177   $ 23,898 $ 108,602 $ 81,029
 

Non-GAAP Sales and Marketing Expense

Set forth below is a presentation of the company’s "Non-GAAP Sales and Marketing Expense." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017   2018   2017
Sales and marketing expense (GAAP) $ 45,084 $ 37,925 $ 166,607 $ 140,473
Less: Asset impairment 2,720 - 2,720 -
Stock-based expense   4,320     3,351   16,573   14,592
Non-GAAP Sales and Marketing Expense $ 38,044   $ 34,574 $ 147,314 $ 125,881
 

Non-GAAP General and Administrative Expense

Set forth below is a presentation of the company’s "Non-GAAP General and Administrative Expense." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017   2018   2017
General and administrative expense (GAAP) $ 32,638 $ 30,350 $ 118,208 $ 112,975
Less: Loss on disposal of assets 574 52 2,013 524
Loss due to cyber incident, net of recoveries 4,952 - 4,952 -
Acquisition-related (income) expense (257 ) 2,508 2,437 5,557
Costs related to the Hart-Scott-Rodino review process - 2,310 78 11,012
Stock-based expense   4,980     3,861   19,742   18,978
Non-GAAP General and Administrative Expense $ 22,389   $ 21,619 $ 88,986 $ 76,904
 

Non-GAAP Operating Expense

Set forth below is a presentation of the company’s "Non-GAAP Operating Expense." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017   2018   2017
Operating expense (GAAP) $ 117,082 $ 101,319 $ 439,251 $ 360,655
Less: Asset impairment and loss on disposal of assets 3,294 52 4,733 524
Amortization of intangible assets 9,588 7,154 35,911 17,755
Loss due to cyber incident, net of recoveries 4,952 - 4,952 -
Acquisition-related (income) expense (257 ) 2,508 2,437 5,557
Costs related to the Hart-Scott-Rodino review process - 2,310 78 11,012
Stock-based expense   11,895     9,204   46,238   41,993
Non-GAAP Operating Expense $ 87,610   $ 80,091 $ 344,902 $ 283,814

Non-GAAP Operating Income

     
Set forth below is a presentation of the company’s "Non-GAAP Operating Income." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017  
Operating income (GAAP) $ 12,400 $ 9,813 $ 66,050 $ 30,010
Acquisition-related and other deferred revenue 1,056 710 1,890 3,058
Asset impairment and loss on disposal of assets 3,294 52 4,733 524
Amortization of product technologies and intangible assets 19,017 14,567 71,708 39,918
Loss due to cyber incident, net of recoveries 4,952 - 4,952 -
Acquisition-related (income) expense (257 ) 2,508 2,437 5,557
Costs related to the Hart-Scott-Rodino review process - 2,310 78 11,012
Stock-based expense   13,149     10,103     50,641     45,835  
Non-GAAP Operating Income $ 53,611   $ 40,063   $ 202,489   $ 135,914  
 

Non-GAAP Net Income

Set forth below is a presentation of the company’s "Non-GAAP Net Income" and "Non-GAAP Net Income per Non-GAAP Diluted Share." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended

Twelve Months Ended

December 31, December 31,
  2018     2017     2018     2017  
Net income (loss) (GAAP) $ 6,272 $ (20,865 ) $ 34,725 $ 377
Income tax (benefit) expense   (618 )   24,458     (425 )   14,864  
Income before income taxes 5,654 3,593 34,300 15,241
 
Acquisition-related and other deferred revenue 1,056 710 1,890 3,058
Asset impairment and loss on disposal of assets 3,294 52 6,733 524
Amortization of product technologies and intangible assets 19,017 14,567 71,708 39,918
Loss due to cyber incident, net of recoveries 4,952 - 4,952 -
Acquisition-related (income) expense (257 ) 2,508 2,437 5,557
Costs related to the Hart-Scott-Rodino review process - 2,310 78 11,012
Amortization of convertible note discount 2,639 2,488 10,324 5,991
Stock-based expense   13,149     10,103     50,641     45,835  
Non-GAAP income before income taxes 49,504 36,331 183,063 127,136
Assumed rate for income tax expense (1) 26.0 % 40.0 % 26.0 % 40.0 %
Assumed provision for non-GAAP income tax expense   12,871     14,532     47,596     50,854  
Non-GAAP Net Income $ 36,633   $ 21,799   $ 135,467   $ 76,282  
 
Net income (loss) per diluted share $ 0.07 $ (0.26 ) $ 0.38 $ 0.00
Non-GAAP Net Income per Non-GAAP Diluted Share $ 0.39 $ 0.26 $ 1.51 $ 0.93
 
Weighted average outstanding shares - basic 91,492 80,583 87,290 79,433
Non-GAAP adjusted diluted weighted average shares outstanding:
Weighted average outstanding shares - diluted 95,108 83,464 91,531 82,398
Dilution offset from convertible note hedge transactions   (1,621 )   (321 )   (1,876 )   (81 )
Non-GAAP diluted weighted average shares outstanding (2)   93,487     83,143     89,655     82,317  
 

Non-GAAP On Demand Revenue

Set forth below is a presentation of the company’s "Non-GAAP On Demand Revenue." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017  
On demand revenue (GAAP) $ 218,051 $ 180,104 $ 833,709 $ 642,622
Acquisition-related and other deferred revenue   1,056     710     1,890     3,058  
Non-GAAP On Demand Revenue $ 219,107   $ 180,814   $ 835,599   $ 645,680  

Ending On Demand Units, Average On Demand Units, ACV, and RPU

     
Set forth below is a presentation of the company’s "Ending On Demand Units," "Average On Demand Units," "ACV," and "RPU." Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017  
Ending on demand units 16,219 13,003 16,219 13,003
Average on demand units 16,146 12,628 14,847 11,711
 
ACV $ 876,637 $ 751,183
RPU $ 54.05 $ 57.77
 

Non-GAAP Total Revenue Guidance

Set forth below is a presentation of the company’s "Non-GAAP Total Revenue" guidance for the three months ending March 31, 2019, and the twelve months ending December 31, 2019. Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Guidance Range for the Three Months Ending Guidance Range for the Twelve Months Ending
March 31, 2019 December 31, 2019
Low (3) High (3) Low (3) High (3)
Revenue (GAAP) $

232,790

$

234,790

$

979,600

$

999,600

Acquisition-related and other deferred revenue  

210

   

210

   

400

   

400

 
Non-GAAP Total Revenue $ 233,000   $ 235,000   $ 980,000   $ 1,000,000  
 

Non-GAAP Net Income Guidance

Set forth below is a presentation of the company’s "Non-GAAP Net Income" and "Non-GAAP Net Income per Diluted Share" guidance for the three months ending March 31, 2019, and the twelve months ending December 31, 2019. Please reference the "Explanation of Non-GAAP Financial Measures" section.
 
Guidance Range for the Three Months Ending Guidance Range for the Twelve Months Ending
March 31, 2019 December 31, 2019
Low (3) High (3) Low (3) High (3)
Non-GAAP Net Income:
Net income (GAAP) $

8,520

$

10,540

$

43,550

$

52,990

Income tax expense  

3,320

   

4,100

   

17,360

   

21,120

 
Income before income taxes

11,840

14,640

60,910

74,110

 
Acquisition-related and other deferred revenue

210

210

400

400

Amortization of product technologies and intangible assets 19,800 19,600 79,200 78,400
Amortization of convertible note discount 2,680 2,680 10,960 10,960
Stock-based expense   15,200     15,000     65,400     64,600  
Non-GAAP income before income taxes 49,730 52,130 216,870 228,470
Expected effective tax rate (1) 26.0 % 26.0 % 26.0 % 26.0 %
Assumed provision for income tax expense   12,930     13,554     56,386     59,402  
Non-GAAP Net Income $ 36,800   $ 38,576   $ 160,484   $ 169,068  
 
Net income per diluted share $ 0.09 $ 0.11 $ 0.45 $ 0.55
Non-GAAP net income per diluted share $ 0.39 $ 0.41 $ 1.70 $ 1.79
 
Non-GAAP adjusted diluted weighted average shares outstanding:
Weighted average outstanding shares - diluted 96,375 96,375 97,026 97,026
Dilution offset from convertible note hedge transactions   (2,475 )   (2,475 )   (2,538 )   (2,538 )
Non-GAAP diluted weighted average shares outstanding (2)   93,900     93,900     94,488     94,488  

Adjusted EBITDA Guidance

       
Set forth below is a presentation of the company’s "Adjusted EBITDA" guidance for the three months ending March 31, 2019, and the twelve months ending December 31, 2019. Please reference the "Explanation of Non-GAAP Financial Measures" section.
Guidance Range for the
Three Months Ending
Guidance Range for the
Twelve Months Ending
March 31, 2019 December 31, 2019
Low (3) High (3) Low (3) High (3)
Adjusted EBITDA:
Net income (GAAP) $

8,520

$

10,540

$

43,550

$

52,990

Acquisition-related and other deferred revenue

210

210

400

400

Depreciation, asset impairment, and loss on disposal of assets 8,700 8,500 36,200 35,400
Amortization of product technologies and intangible assets 19,800 19,600 79,200 78,400
Interest expense, net 8,250 8,050 32,890 32,090
Income tax expense

3,320

4,100

17,360

21,120

Stock-based expense   15,200   15,000   65,400   64,600
Adjusted EBITDA $

64,000

$ 66,000 $ 275,000 $ 285,000
                   
 

(1) 

A 26.0% tax rate is assumed in order to approximate the company's long-term effective corporate tax rate. Please reference the “Explanation of Non-GAAP Financial Measures” section.

 

(2) 

It is the current intent of the company to settle conversions of the Convertible Notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of our common stock. We exclude these shares that are issuable upon conversions of our convertible notes because we expect that the dilution from such shares will be offset by the convertible note hedge transactions entered into in May 2017 in connection with the issuance of the convertible notes.

 

(3) 

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 quarterly and full year results, which could cause or contribute to such differences. 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. See additional discussion under "Cautionary Statement Regarding Forward-Looking Statements" above.

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

Source: RealPage