Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-34846 
 
RealPage, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
75-2788861
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
4000 International Parkway
Carrollton, Texas
 
75007-1951
(Address of principal executive offices)
 
(Zip Code)
(972) 820-3000
(Registrant’s telephone number, including area code) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
 
  
Accelerated filer
 
¨
Non-accelerated filer
¨
  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
  
April 22, 2016
Common Stock, $0.001 par value
  
80,025,817


Table of Contents

INDEX
 
 
 
 


Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
RealPage, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
 
March 31, 2016
 
December 31, 2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
57,499

 
$
30,911

Restricted cash
85,168

 
85,461

Accounts receivable, less allowance for doubtful accounts of $2,612 and $2,318 at March 31, 2016 and December 31, 2015, respectively
76,164

 
74,192

Prepaid expenses
10,362

 
8,294

Other current assets
25,828

 
23,085

Total current assets
255,021

 
221,943

Property, equipment, and software, net
94,188

 
82,198

Goodwill
255,398

 
220,097

Identified intangible assets, net
91,723

 
81,280

Deferred tax assets, net
20,918

 
12,051

Other assets
5,571

 
5,632

Total assets
$
722,819

 
$
623,201

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
27,499

 
$
17,448

Accrued expenses and other current liabilities
39,675

 
28,294

Current portion of deferred revenue
82,805

 
84,200

Current portion of term loan, net
3,125

 

Client deposits held in restricted accounts
85,119

 
85,405

Total current liabilities
238,223

 
215,347

Deferred revenue
6,992

 
6,979

Revolving line of credit

 
40,000

Term loan, net
121,188

 

Other long-term liabilities
33,451

 
34,423

Total liabilities
399,854

 
296,749

Commitments and contingencies (Note 8)


 


Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value: 10,000,000 shares authorized and zero shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively

 

Common stock, $0.001 par value: 125,000,000 shares authorized, 84,307,678 and 82,919,033 shares issued and 80,021,740 and 78,793,670 shares outstanding at March 31, 2016 and December 31, 2015, respectively
84

 
83

Additional paid-in capital
478,150

 
471,668

Treasury stock, at cost: 4,285,938 and 4,125,363 shares at March 31, 2016 and December 31, 2015, respectively
(25,600
)
 
(24,338
)
Accumulated deficit
(129,140
)
 
(120,415
)
Accumulated other comprehensive loss
(529
)
 
(546
)
Total stockholders’ equity
322,965

 
326,452

Total liabilities and stockholders’ equity
$
722,819

 
$
623,201


See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
 
Three Months Ended March 31,
 
2016
 
2015
Revenue:
 
 
 
On demand
$
123,411


$
106,460

On premise
772


741

Professional and other
4,200


3,269

Total revenue
128,383

 
110,470

Cost of revenue
54,748

 
47,562

Gross profit
73,635

 
62,908

Operating expense:
 
 
 
Product development
17,272

 
17,977

Sales and marketing
32,199

 
29,113

General and administrative
18,346

 
18,336

Impairment of identified intangible assets

 
527

Total operating expense
67,817

 
65,953

Operating income (loss)
5,818

 
(3,045
)
Interest expense and other, net
(708
)
 
(267
)
Income (loss) before income taxes
5,110

 
(3,312
)
Income tax expense (benefit)
2,114

 
(1,704
)
Net income (loss)
$
2,996


$
(1,608
)
 
 
 
 
Net income (loss) per share attributable to common stockholders
 
 
 
Basic
$
0.04

 
$
(0.02
)
Diluted
$
0.04

 
$
(0.02
)
Weighted average shares used in computing net income (loss) per share attributable to common stockholders
 
 
 
Basic
76,656

 
76,956

Diluted
77,147

 
76,956

See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
 
Three Months Ended March 31,
 
2016
 
2015
Net income (loss)
$
2,996

 
$
(1,608
)
Unrealized loss on interest rate swap agreements
(79
)
 

Foreign currency translation adjustment
96

 
(164
)
Comprehensive income (loss)
$
3,013

 
$
(1,772
)
See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
 
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated Deficit
 
Treasury Shares
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2015
82,919

 
$
83

 
$
471,668

 
$
(546
)
 
$
(120,415
)
 
(4,125
)
 
$
(24,338
)
 
$
326,452

Issuance of common stock
179

 

 
2,482

 

 

 

 

 
2,482

Issuance of restricted stock
1,988

 
2

 
(2
)
 

 

 

 

 

Treasury stock purchases, at cost

 

 

 

 

 
(939
)
 
(17,400
)
 
(17,400
)
Retirement of treasury shares
(778
)
 
(1
)
 
(4,416
)
 

 
(11,721
)
 
778

 
16,138

 

Stock-based compensation

 

 
8,391

 

 

 

 

 
8,391

Net excess tax benefit of stock-based compensation

 

 
27

 

 

 

 

 
27

Interest rate swap agreements

 

 

 
(79
)
 

 

 

 
(79
)
Foreign currency translation

 

 

 
96

 

 

 

 
96

Net income

 

 

 

 
2,996

 

 

 
2,996

Balance as of March 31, 2016
84,308

 
$
84

 
$
478,150

 
$
(529
)
 
$
(129,140
)
 
(4,286
)
 
$
(25,600
)
 
$
322,965

See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
2,996

 
$
(1,608
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
12,607

 
10,611

Deferred taxes
1,539

 
(2,108
)
Stock-based compensation
8,391

 
10,747

Excess tax benefit from stock options
(27
)
 

Impairment of identified intangible assets

 
527

Loss on disposal and impairment of other long-lived assets

 
592

Acquisition-related consideration
(126
)
 
377

Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
 
 
 
Accounts receivable
4,952

 
4,032

Prepaid expenses and other current assets
(17
)
 
(1,176
)
Other assets
117

 
79

Accounts payable
1,106

 
170

Accrued compensation, taxes, and benefits
(2,332
)
 
1,372

Deferred revenue
(1,597
)
 
(1,227
)
Other current and long-term liabilities
1,360

 
110

Net cash provided by operating activities
28,969

 
22,498

Cash flows from investing activities:
 
 
 
Purchases of property, equipment, and software
(10,217
)
 
(6,182
)
Acquisition of businesses, net of cash acquired
(59,152
)
 

Net cash used in investing activities
(69,369
)
 
(6,182
)
Cash flows from financing activities:
 
 
 
Proceeds from term loan
124,688

 

Payments on revolving line of credit
(40,000
)
 
(5,000
)
Deferred financing costs
(392
)
 
(8
)
Payments on capital lease obligations
(152
)
 
(143
)
Payments of acquisition-related consideration
(2,361
)
 
(1,139
)
Issuance of common stock
2,482

 
755

Net excess tax benefit from stock-based compensation
27

 

Purchase of treasury stock
(17,400
)
 
(9,766
)
Net cash provided by (used in) financing activities
66,892

 
(15,301
)
Net increase in cash and cash equivalents
26,492

 
1,015

Effect of exchange rate on cash
96

 
(164
)
Cash and cash equivalents:
 
 
 
Beginning of period
30,911

 
26,936

End of period
$
57,499

 
$
27,787


See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Cash Flows, continued
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
512

 
$
180

Cash paid for income taxes, net of refunds
$
191

 
$
76

Non-cash investing activities:
 
 
 
Accrued property, equipment, and software
$
8,640

 
$
647


See accompanying notes

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Notes to the Condensed Consolidated Financial Statements
(unaudited)
1. The Company
RealPage, Inc., a Delaware corporation, together with its subsidiaries, (the “Company” or “we” or “us”) is a provider of property management solutions that enable owners and managers of a wide variety of single family, multifamily, and vacation rental property types to manage their marketing, pricing, screening, leasing, accounting, purchasing, and other property operations. Our on demand software solutions are delivered through an integrated software platform that provides a single point of access and a shared repository of prospect, renter, and property data. By integrating and streamlining a wide range of complex processes and interactions among the rental housing ecosystem of owners, managers, prospects, renters, and service providers, our platform optimizes the property management process and improves the experience for all of these constituents. Our solutions enable property owners and managers to optimize revenues and reduce operating costs through higher occupancy, improved pricing methodologies, new sources of revenue from ancillary services, improved collections, and more integrated and centralized processes.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. We believe that the disclosures made are appropriate, conform to those rules and regulations, and that the condensed or omitted information is not misleading.
The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.
These financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 29, 2016 (“Form 10-K”).
Reclassification
Certain amounts included in cost of revenue in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 have been reclassified as sales and marketing expense to conform to current period presentation. This reclassification resulted in an increase in gross profit of $0.2 million during the period. The reclassification did not result in a change in the period's net loss.
Segment and Geographic Information
Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a company-wide basis. As a result, we determined that the Company has a single reporting segment and operating unit structure.
Principally, all of our revenue for the three months ended March 31, 2016 and 2015 was earned in the United States. Net property, equipment, and software held consisted of $89.5 million and $77.4 million located in the United States, and $4.7 million and $4.8 million in our international subsidiaries at March 31, 2016 and December 31, 2015, respectively. Substantially all of the net property, equipment, and software held in our international subsidiaries was located in the Philippines and India at both March 31, 2016 and December 31, 2015.
Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the allowance for doubtful accounts; the useful lives of intangible assets and the recoverability or impairment of tangible and intangible asset values; fair value measurements; contingent commissions related to the sale of insurance products; purchase accounting allocations and contingent consideration; revenue and deferred revenue and related reserves; stock-based compensation; and our effective income tax rate and the recoverability of deferred tax assets, which are based upon our expectations of future taxable income and allowable deductions. Actual results could differ from these estimates. For greater detail regarding these accounting policies and estimates, refer to our Form 10-K.

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Revenue Recognition
We derive our revenue from three primary sources: on demand software solutions, on premise software solutions, and professional services. We commence revenue recognition when all of the following conditions are met:
there is persuasive evidence of an arrangement;
the solution and/or service has been provided to the client;
the collection of the fees is probable; and
the amount of fees to be paid by the client is fixed or determinable.
If the fees are not fixed or determinable, we recognize revenues as payments become due from clients or when amounts owed are collected, provided all other conditions for revenue recognition have been met. Accordingly, this may materially affect the timing of our revenue recognition and results of operations.
When arrangements with clients include multiple software solutions and/or services, we allocate arrangement consideration to each deliverable based on its relative selling price. In such circumstances, we determine the relative selling price for each deliverable based on vendor specific objective evidence of selling price ("VSOE"), if available, or our best estimate of selling price ("ESP"). We have determined that third-party evidence of selling price is not available as our solutions and services are not largely interchangeable with those of other vendors. Our process for determining ESP considers multiple factors, including prices charged by us for similar offerings when sold separately, pricing and discount strategies, and other business objectives.
Taxes collected from clients and remitted to governmental authorities are presented on a net basis.
On Demand Revenue
Our on demand revenue consists of license and subscription fees, transaction fees related to certain of our software-enabled value-added services, and commissions derived from us selling certain risk mitigation services.
License and subscription fees are composed of a charge billed at the initial order date and monthly or annual subscription fees for accessing our on demand software solutions. The license fee billed at the initial order date is recognized as revenue on a straight-line basis over the longer of the contractual term or the period in which the client is expected to benefit, which we consider to be three years. Recognition starts once the product has been activated. Revenue from monthly and annual subscription fees is recognized on a straight-line basis over the access period.
We recognize revenue from transaction fees derived from certain of our software-enabled value-added services as the related services are performed.
As part of our risk mitigation services to the rental housing industry, we act as an insurance agent and derive commission revenue from the sale of insurance products to individuals. The commissions are based upon a percentage of the premium that the insurance company charges to the policyholder and are subject to forfeiture in instances where a policyholder cancels prior to the end of the policy. If the policy is cancelled, our commissions are forfeited as a percent of the unearned premium. As a result, we recognize commissions related to these services as earned ratably over the policy term. Our contract with our underwriting partner provides for contingent commissions to be paid to us in accordance with the agreement. Our estimate of contingent commission revenue considers historical loss experience on the policies sold by us.
On Premise Revenue
Sales of our on premise software solutions consist of an annual term license, which includes maintenance and support. Clients can renew their annual term license for additional one-year terms at renewal price levels. We recognize revenue for the annual term license and support services on a straight-line basis over the contract term.
We also derive on premise revenue from multiple element arrangements that include perpetual licenses with maintenance and other services to be provided over a fixed term. Revenue is recognized for delivered items using the residual method when we have VSOE of fair value for the undelivered items and all other criteria for revenue recognition have been met.
When VSOE has not been asserted for the undelivered items, we recognize the arrangement fees ratably over the longer of the client support period or the period during which professional services are rendered.
Professional and Other Revenue
Professional services and other revenue are recognized as the services are rendered for time and material contracts. Training revenues are recognized after the services are performed.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or

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liability in an orderly transaction between market participants on the measurement date. See additional discussion of our fair value measurements and methodology at Note 11.
Concentrations of Credit Risk
Our cash accounts are maintained at various financial institutions and may, from time to time, exceed federally insured limits. The Company has not experienced any losses in such accounts.
Concentrations of credit risk with respect to accounts receivable result from substantially all of our clients being in the multifamily rental housing market. Our clients, however, are dispersed across different geographic areas. We do not require collateral from clients. We maintain an allowance for doubtful accounts based upon the expected collectability of accounts receivable.
No single client accounted for 10% or more of our revenue or accounts receivable for the three months ended March 31, 2016 or 2015.
Derivative Financial Instruments
The Company is exposed to interest rate risk related to our variable rate debt. The Company manages this risk through a program that may include the use of interest rate derivatives, the counterparties to which are major financial institutions. Our objective in using interest rate derivatives is to add stability to interest cost by reducing our exposure to interest rate movements. We do not use derivative instruments for trading or speculative purposes.
Our interest rate derivatives are designated as cash flow hedges and are carried in the Condensed Consolidated Balance Sheets at their fair value. Unrealized gains and losses resulting from changes in the fair value of these instruments are classified as either effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income ("AOCI"), while the ineffective portion is recorded as a component of interest expense in the period of change. Amounts reported in AOCI related to interest rate derivatives are reclassified into interest expense as interest payments are made on our variable-rate debt. If an interest rate derivative agreement is terminated prior to its maturity, the amounts previously recorded in AOCI are recognized into earnings over the period that the forecasted transactions impact earnings. If the hedging relationship is discontinued because it is probable that the forecasted transactions will not occur according to our original strategy, any related amounts previously recorded in AOCI are recognized in earnings immediately. See Note 13, Derivative Financial Instruments for additional information.
Business Combinations
When we acquire businesses, we allocate the total consideration paid to the fair value of the tangible assets, liabilities, and identifiable intangible assets acquired. Any residual purchase consideration is recorded as goodwill. The allocation of the purchase price requires our management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, in particular with respect to identified intangible assets. These estimates are based on the application of valuation models using historical experience and information obtained from the management of the acquired businesses. Such estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. Unanticipated events and circumstances may occur that would affect the accuracy or validity of these estimates.
Our business combination agreements may provide for the payment of additional cash consideration to the extent certain targets are achieved in the future. The fair value of this contingent consideration is based on significant estimates and is initially recorded as purchase price. Changes in the fair value of contingent consideration are reflected in the Condensed Consolidated Statements of Operations. Acquisition-related costs are expensed as incurred.
Inventory
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. The Company establishes inventory allowances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable values based on assumptions about forecasted demand, open purchase commitments, and market conditions. Inventories consist primarily of meters, including subcontract labor costs on contracts in progress, and locker units related to The Egg product.

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Other Current Assets
Other current assets consisted of the following at March 31, 2016 and December 31, 2015:
 
 
March 31,
 
December 31,
 
 
2016
 
2015
 
 
(in thousands)
Lease-related receivables
 
$
18,599

 
$
20,683

Inventory
 
3,394

 
1,999

Indemnification asset
 
1,220

 

Other current assets
 
2,615

 
403

Total other current assets
 
$
25,828

 
$
23,085

Lease-related receivables consist primarily of incentives related to a lease executed in 2015 for our new corporate headquarters in Richardson, Texas.
Recently Adopted Accounting Standards
We adopted Accounting Standards Update ("ASU") 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Agreements in the first quarter of 2016. As a result of our retrospective adoption of these standards, we present term loans payable net of unamortized debt issuance costs in the Condensed Consolidated Balance Sheets. Prior to adoption of this ASU, such issuance costs were included in other assets. Our adoption of this standard did not result in a reclassification of previously reported amounts, as we did not have outstanding term loans at December 31, 2015. As required, debt issuance costs related to our secured revolving credit facility continue to be presented in other assets in the Condensed Consolidated Balance Sheets.
In November 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement-period adjustments. This ASU requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, be recognized in the reporting period in which the adjustment is identified. We adopted ASU 2015-16 in the first quarter of 2016. Adoption of this standard did not have a significant impact on our financial reporting in the current period.
In November 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires companies to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet instead of the previous requirement to separate deferred income tax assets and liabilities into current and noncurrent amounts. As permitted in this ASU, we early adopted ASU 2015-17 effective December 31, 2015 on a retrospective basis.
In April 2015, The FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to clarify the customer's accounting for fees paid in a cloud computing arrangement and whether such an arrangement contains a software license or is solely a service contract. The Company adopted this standard and will prospectively apply the guidance to all arrangements entered into or materially modified after January 1, 2016
Recently Issued Accounting Standards
On March 30, 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). Current GAAP requires tax benefits in excess of compensation cost to be recorded in additional paid-in capital and tax deficiencies to be recorded in equity to the extent of previous accumulated excess tax benefit, and then to the income statement. Under the new guidance, all excess tax benefits and tax deficiencies will be recognized as income tax expense or benefit in the income statement. Additionally, this ASU requires an entity to recognize excess tax benefits, regardless of whether the benefit reduces taxes payable in the current period and changes the classification of the excess tax benefits in the statement of cash flows.
ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. An entity that elects early adoption must adopt all of the amendments in the same period. We have not yet selected a transition date and are currently evaluating the impact of adopting ASU 2016-09 on our financial statements.
On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Current GAAP requires lessees to classify their leases as either capital leases, for which the lessee recognizes a lease liability and a related leased asset, or operating leases, which are not reflected in the lessee's balance sheet. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition,

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measurement, and presentation of expenses and cash flows arising from a lease will depend primarily on its classification as a finance or an operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require both operating and finance leases to be recognized on the balance sheet. Additionally, the ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements.
ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance to the beginning of the earliest comparative period presented. We have not yet selected a transition date and are currently evaluating the impact of adopting ASU 2016-02 on our financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 was originally effective for annual and interim reporting periods beginning after December 15, 2016 and early application was prohibited. This ASU permits companies to apply the amendments either retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of Effective Date. ASU 2015-14 permits public business entities to defer the adoption of ASU 2014-09 until interim and annual reporting periods beginning after December 15, 2017. Earlier application is permitted, but not before interim and annual and reporting periods beginning after December 15, 2016. The Company has not yet selected a transition method or date and is currently evaluating the impact of the pending adoption of this ASU on its ongoing financial reporting.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing. This ASU provides clarification of two aspects contained in Topic 606: the identification of performance obligations and licensing implementation guidance. The amendments contained in the ASU are intended to reduce the cost and complexity of applying the guidance contained in Topic 606 on identifying goods or services and provide guidance on assessing whether promises to transfer goods or services are distinct. As for licensing implementation guidance, the ASU seeks to improve its operability and understandability with respect to determining whether an entity's promise to grant a license provides a customer with a right to use or access an entity's intellectual property. ASU 2016-10 is effective for annual reporting periods beginning after December 15, 2018, and for interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted, subject to certain restrictions. The Company has not yet selected a transition method or date and is currently evaluating the impact of the pending adoption of this ASU on its ongoing financial reporting.
3. Acquisitions
We apply the guidance contained in ASC Topic 805, Business Combinations ("ASC 805") in determining whether an acquisition transaction constitutes a business combination. ASC 805 defines a business as consisting of inputs and processes applied to those inputs that have the ability to create outputs. The acquisition transactions below were determined to constitute business combinations and were accounted for under ASC 805.
Purchase consideration includes assets transferred, liabilities incurred, and/or equity interests issued by us, all of which are measured at their fair value as of the date of acquisition. Our business combination transactions may be structured to include an up-front cash payment and deferred and/or contingent cash payments to be made at specified dates subsequent to the date of acquisition. Deferred cash payments are included in the acquisition consideration based on their fair value as of the acquisition date. The fair value of these obligations is estimated based on the present value, as of the date of acquisition, of the anticipated future payments. The future payments are discounted using a rate that considers an estimate of the return expected by a market-participant and a measurement of the risk inherent in the cash flows, among other inputs. Deferred cash payments are generally subject to adjustments specified in the underlying purchase agreement related to the seller's indemnification obligations. Contingent cash payments are obligations to make future cash payments to the seller, the payment of which is contingent upon the acquired business achieving stipulated operational or financial targets in the post-acquisition period. Contingent cash payments are included in the purchase consideration at their fair value as of the acquisition date. The fair value of these payments is estimated by management using a probability weighted discount model based on the achievement of the specified targets. The fair value of these liabilities is re-evaluated on a quarterly basis, and any change is reflected in the line "General and administrative" in the accompanying Condensed Consolidated Statements of Operations.
The total purchase consideration is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess consideration is classified as goodwill. Acquired intangibles are recorded at their estimated fair value based on the income approach using market-based estimates. Acquired intangibles generally include developed product technologies,

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which are amortized over their useful life on a straight-line basis, and client relationships, which are amortized over their useful life proportionately to the expected discounted cash flows derived from the asset. When trade names acquired are not classified as indefinite-lived, they are amortized on a straight-line basis over their expected useful life.
Acquisition costs are expensed as incurred and are included in the line "General and administrative" in the accompanying Condensed Consolidated Statements of Operations. We include the results of operations from acquired businesses in our condensed consolidated financial statements from the effective date of the acquisition.
2016 Acquisitions
NWP Services Corporation
In March 2016, we acquired all of the issued and outstanding stock of NWP Services Corporation ("NWP"). NWP provides a full range of utility management services, including resident billing; payment processing; utility expense management; analytics and reporting; sub-metering and maintenance; and regulatory compliance. The primary products offered by NWP include Utility Logic, Utility Smart, Utility Genius, SmartSource, and NWP Sub-meter. NWP will be integrated into our resident services product family. The integrated platform will enable property owners and managers to increase the collection of rent utilities and energy recovery. Goodwill arising from this acquisition consists of anticipated synergies from the integration of NWP into our existing structure.
We acquired NWP's issued and outstanding stock for a purchase price of $69.0 million. The purchase price consisted of a cash payment of $59.0 million at closing, net of cash acquired of $0.1 million; deferred cash obligations of $7.2 million, payable over a period of three years following the date of acquisition; and other amounts totaling $3.2 million, consisting of payments to certain employees and former shareholders of NWP that are expected to be remitted over a short-term period. The deferred cash obligation is subject to adjustments specified in the merger agreement related to the sellers' indemnification obligations. The acquisition-date fair value of the deferred cash obligation was $6.8 million. This acquisition was financed with proceeds from our term loan that was issued in February 2016. Acquisition costs associated with this transaction totaled $0.2 million, and were expensed as incurred.
The preliminary allocation of the purchase price is as follows, in thousands:
 
NWP
Restricted cash
$
4,960

Accounts receivable
7,902

Property, equipment, and software
3,194

Intangible assets
16,349

Goodwill
35,292

Deferred tax assets, net
10,154

Net other assets
3,065

Accounts payable and accrued liabilities
(6,589
)
Client deposits held in restricted accounts
(5,294
)
Total purchase price
$
69,033

The acquired identified intangible assets comprise developed technologies, trade name, and client relationships having useful lives of five, three, and ten years, respectively. Goodwill and identified intangible assets acquired in this business combination, valued at $35.3 million and $16.3 million, have carryover tax bases of $0.7 million and $11.0 million, respectively, which are deductible for tax purposes. Goodwill and identified intangible assets recognized in excess of those carryover tax basis amounts are not deductible for tax purposes. Accounts receivable acquired have a gross contractual value of $11.3 million, of which $3.4 million is estimated to be uncollectable.
We assigned approximately $10.2 million of value to deferred tax assets in our purchase price allocation, consisting primarily of $9.9 million of federal and state net operating losses ("NOL"). This NOL amount reflects the tax benefit from approximately $27.3 million of NOLs we expect to realize after considering various limitations and restrictions on NWP's pre-acquisition NOLs.
In connection with the acquisition of NWP, we recorded an indemnification asset of $1.2 million, which represents the selling security holders' obligation under the purchase agreement to indemnify RealPage, Inc. for the outcome of certain accrued obligations. The indemnification asset was recognized on the same basis as the corresponding liability, which is based on its estimated fair value as of the date of acquisition. We are also indemnified against losses related to certain litigation to which NWP was a party at the date of acquisition. A settlement was reached in one of these matters in March 2016, for which a

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liability of $0.5 million was recognized in our allocation of purchase price. At this time, sufficient information is not available to predict the outcome or costs of responding to, or the costs, if any, of resolving the remaining matters.
The estimated fair values of assets acquired and liabilities assumed presented above are provisional and are based on the information available as of the acquisition date. We believe that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is awaiting additional information necessary to finalize those values. Therefore, the provisional measurements of fair value are subject to change, and such changes could be significant. We expect to finalize the valuation of these assets and liabilities as soon as practicable, but no later than one year from the acquisition date.
2015 Acquisitions
Indatus
In June 2015, we acquired certain assets from ICIM Corporation, including the Answer Automation, Call Tracker, and Zip Digital products, marketed under the name Indatus. The Indatus offerings are software-as-a-service products that provide automated answering services, marketing spend analysis tools, and other features which enhance the ability of managers of multifamily properties to communicate with their residents. We are currently integrating the Indatus assets with our existing contact center and maintenance products, which will increase the features of these existing solutions.
We acquired the Indatus assets for a purchase price of $49.4 million, consisting of a cash payment of $43.8 million at closing; deferred cash payments of up to $5.0 million, payable over nineteen months after the acquisition date; and contingent cash payments of up to $2.0 million, in the aggregate, if certain revenue targets are met for the twelve month periods ending June 30, 2016 and 2017. The fair value of the deferred and contingent cash payments was $4.7 million and $0.9 million, respectively, as of the acquisition date. Direct acquisition costs were $0.3 million. This acquisition was financed using proceeds from our revolving credit facility.
The acquired developed product technologies and client relationships have useful lives of three and ten years, respectively. The trade name acquired is being amortized over a useful life of one year, based on our anticipated use of the asset. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes. Goodwill arising from the acquisition consists largely of anticipated synergies resulting from the integration of Indatus with our pre-existing products and from leveraging our existing client base and sales staff.
VRX
In June 2015, we acquired certain assets from RJ Vacations, LLC and Switch Development Corporation, including the VRX product ("VRX"). VRX is a software-as-a-service application which allows vacation rental management companies to manage the cleaning and turning of units, accounting, and document management. VRX augments our existing line of solutions offered to the vacation rental industry, and we are currently integrating it with our Kigo solution.
We acquired the VRX assets for a purchase price of $2.0 million, consisting of a cash payment of $1.5 million at closing and a contingent cash payment of up to $0.5 million. Payment of the contingent cash obligation is dependent upon the achievement of certain subscription or booking activity targets and is subject to adjustments specified in the acquisition agreement related to the sellers' indemnification obligations. The contingent cash obligation had a fair value of $0.5 million, as of the acquisition date, and is due fifteen months after the date of acquisition.
The acquisition agreement also provides for the sellers to receive additional contingent cash payments of up to $3.0 million. Payment of the additional contingent consideration is dependent upon the achievement of certain revenue targets during the twelve month periods ending December 31, 2016, 2017, and 2018, and the sellers providing certain services during a specified period following the acquisition date. Due to this post-acquisition service requirement, the Company concluded that the additional contingent cash payments represent post-acquisition compensation; therefore, these amounts were excluded from the purchase consideration. This acquisition was financed using cash flows from operations. Direct acquisition costs were immaterial.
The acquired developed product technologies have an estimated useful life of three years. The estimated fair value of the client relationships acquired was immaterial and these intangible assets were expensed as of the acquisition date. Goodwill arising from the acquisition consists largely of anticipated synergies resulting from the integration of VRX with Kigo. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes.
Purchase Price Allocation
The estimated fair values of assets acquired and liabilities assumed related to the above acquisitions are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. We believe that this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but we are waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. We expect to

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finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.
We preliminarily allocated the purchase price of Indatus and VRX as follows:
 
 
Indatus
 
VRX
 
 
(in thousands)
Accounts receivable
 
$
646

 
$

Intangible assets:
 
 
 
 
Developed product technologies
 
13,400

 
794

Client relationships
 
9,770

 
11

Trade names
 
83

 

Goodwill
 
25,575

 
1,186

Net other liabilities
 
(57
)
 

Total purchase price
 
$
49,417

 
$
1,991

At March 31, 2016 and December 31, 2015, total deferred cash obligations related to acquisitions completed in 2015 were $4.9 million and $5.1 million, respectively, and were carried net of a discount of $0.1 million and $0.2 million.
The aggregate fair value of contingent consideration obligations related to acquisitions completed in 2015 was $0.6 million and $0.8 million at March 31, 2016 and December 31, 2015, respectively. During the three months ended March 31, 2016, we recognized a net gain of $0.2 million related to changes in the fair value of these obligations.
No payments of deferred or contingent cash obligations related to acquisitions completed in 2015 were made during the three months ended March 31, 2016.
Acquisition Activity Prior to 2015
We completed acquisitions in the years prior to 2015 for which acquisition-related deferred and contingent consideration was included in the purchase price and recorded at fair value. The liability established for the acquisition-related contingent consideration will continue to be re-evaluated on a quarterly basis and measured at the estimated fair value based on the probabilities, as determined by management, of achieving the respective targets. This evaluation will be performed until all of the targets have been met or terms of the respective agreements expire.
At March 31, 2016 and December 31, 2015, total deferred cash obligations related to acquisitions completed prior to 2015 totaled $5.0 million and $7.3 million, respectively. During the three months ended March 31, 2016 and 2015, we paid deferred cash obligations related to these acquisitions in the amount of $2.5 million and $0.5 million, respectively.
The aggregate fair value of contingent cash obligations related to acquisitions completed prior to 2015 was estimated to be zero at both March 31, 2016 and December 31, 2015. During the three months ended March 31, 2015, we paid contingent cash obligations totaling $0.7 million related to these acquisitions. No payments were made during the three months ended March 31, 2016 related to these obligations. A net loss of $0.3 million was recognized during the three months ended March 31, 2015 related to the change in fair value of the contingent cash obligations. No gain or loss was recognized during the three months ended March 31, 2016.

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Pro Forma Results of Acquisitions
The following table presents pro forma results of operations for the three months ended March 31, 2016 and 2015, as if the aforementioned acquisitions had occurred at the beginning of each period presented. The pro forma information includes the business combination accounting effects resulting from these acquisitions, including interest expense, tax benefit, and additional amortization resulting from the valuation of amortizable intangible assets. We prepared the pro forma financial information for the combined entities for comparative purposes only, and it is not indicative of what actual results would have been if the acquisitions had occurred at the beginning of the presented period, or of future periods. Pro forma results are presented in thousands, except per share amounts.
 
Three Months Ended March 31,
 
2016
Pro Forma
 
2015
Pro Forma
 
 
 
 
Total revenue:
$
138,131

 
$
127,193

Net income (loss)
2,755

 
(2,585
)
Net income (loss) per common share:
 
 
 
Basic
$
0.04

 
$
(0.03
)
Diluted
$
0.04

 
$
(0.03
)
4. Property, Equipment, and Software
Property, equipment, and software consisted of the following at March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
December 31, 2015
 
(in thousands)
Leasehold improvements
$
29,701

 
$
26,138

Data processing and communications equipment
70,630

 
67,871

Furniture, fixtures, and other equipment
25,627

 
18,253

Software
73,733

 
68,972

 
199,691

 
181,234

Less: Accumulated depreciation and amortization
(105,503
)
 
(99,036
)
Property, equipment, and software, net
$
94,188

 
$
82,198

Depreciation and amortization expense for property, equipment, and purchased software was $5.5 million and $5.0 million for the three months ended March 31, 2016 and 2015, respectively. This includes amortization related to assets acquired through capital leases.
The carrying amount of capitalized software development costs was $44.3 million and $41.2 million at March 31, 2016 and December 31, 2015, respectively. Total accumulated amortization related to these assets was $15.1 million and $14.0 million at the respective dates. Amortization expense related to capitalized software development costs totaled $1.1 million and $0.7 million for the three months ended March 31, 2016 and 2015, respectively.
We review in-progress software development projects on a periodic basis to ensure completion is assured and the development work will be placed into service as a new product or significant product enhancement. During the three months ended March 31, 2015, we identified certain projects for which software development work had ceased and it was determined the projects would be discontinued. Our analysis of the capitalized costs resulted in the conclusion that they had no value outside of the respective projects for which they were originally incurred. As a result, we recognized an impairment loss of $0.6 million during the three months ended March 31, 2015 related to these costs. The impairment charges are included in "Product development" in the accompanying Condensed Consolidated Statements of Operations. No impairments of software development projects were identified during the three months ended March 31, 2016.

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5. Goodwill and Identified Intangible Assets
Changes in the carrying amount of goodwill during the three months ended March 31, 2016 were as follows, in thousands:
Balance at December 31, 2015
$
220,097

Goodwill acquired
35,301

Balance at March 31, 2016
$
255,398

Identified intangible assets consisted of the following at March 31, 2016 and December 31, 2015:
 
Weighted Average Amortization Period
(in years)
 
March 31, 2016
 
December 31, 2015
 
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
(in thousands)
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed technologies
3.8
 
$
72,128

 
$
(53,591
)
 
$
18,537

 
$
69,379

 
$
(50,509
)
 
$
18,870

Client relationships
9.2
 
109,423

 
(56,891
)
 
52,532

 
96,523

 
(54,695
)
 
41,828

Trade names
6.4
 
5,686

 
(672
)
 
5,014

 
5,149

 
(28
)
 
5,121

Total finite-lived intangible assets
7.1
 
187,237

 
(111,154
)
 
76,083

 
171,051

 
(105,232
)
 
65,819

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
15,640

 

 
15,640

 
15,461

 

 
15,461

Total identified intangible assets
 
 
$
202,877

 
$
(111,154
)
 
$
91,723

 
$
186,512

 
$
(105,232
)
 
$
81,280

Amortization expense related to finite-lived intangible assets was $6.0 million and $4.9 million for the three months ended March 31, 2016 and 2015, respectively.
In March 2015, the Company completed the integration of the InstaManager and Kigo platforms into a single solution marketed under the Kigo name. Subsequent to this integration, the Company discontinued the use of the InstaManager trade name to market or identify the software. Due to this change in circumstance, the Company evaluated the InstaManager trade name for impairment and concluded an impairment in the amount of $0.5 million existed at March 31, 2015. This impairment charge is included in "Impairment of identified intangible assets" in the accompanying Condensed Consolidated Statements of Operations.
6Debt
On September 30, 2014, the Company entered into an agreement for a secured revolving credit facility (as amended by the Amendment discussed below, the "Credit Facility") to refinance our outstanding revolving loans. The Credit Facility provides an aggregate principal amount of up to $200.0 million, with sublimits of $10.0 million for the issuance of letters of credit and for $20.0 million of swingline loans. The Credit Facility also allowed us, subject to certain conditions, to request additional term loans or revolving commitments up to an aggregate principal amount of $150.0 million, plus an amount that would not cause our consolidated net leverage ratio, which is a ratio of the Company’s consolidated funded indebtedness to its consolidated EBIDTA, as defined in the agreement, to exceed 3.25 to 1.00. Revolving loans under the Credit Facility may be voluntarily prepaid and re-borrowed. At our option, the revolving loans accrue interest at a per annum rate equal to either LIBOR, plus a margin ranging from 1.25% to 2.00%, or the Base Rate, plus a margin ranging from 0.25% to 1.00% ("Applicable Margin"). The base LIBOR rate is, at our discretion, equal to either one, two, three, or six month LIBOR. The Base Rate is defined as the greater of Wells Fargo's prime rate, the Federal Funds Rate plus 0.50%, or one month LIBOR plus 1.00%. In each case, the Applicable Margin is determined based upon our consolidated net leverage ratio. Accumulated interest is due and payable quarterly, in arrears, for loans bearing interest at the Base Rate and at the end of the applicable interest period in the case of loans bearing interest at the adjusted LIBOR. The Credit Facility is secured by substantially all of our assets, and certain of our existing and future material domestic subsidiaries are required to guarantee our obligations under the Credit Facility. We are also required to comply with customary affirmative and negative covenants, as well as a consolidated net leverage ratio and an interest coverage ratio. All outstanding principal and accrued and unpaid interest is due upon the Credit Facility's maturity on September 30, 2019.
In February 2016, the Company entered into an amendment (the "Amendment") to the Credit Facility. The Amendment provides for an incremental term loan in the amount of $125.0 million ("Term Loan") that is coterminous with the existing

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Credit Facility. Principal payments on the Term Loan are due in quarterly installments beginning in June 2016. Amounts paid under the Term Loan may not be re-borrowed. The Term Loan is subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions. The Company may prepay the Term Loan in whole or in part at any time, without premium or penalty, with prepayment amounts to be applied to remaining scheduled principal amortization payments as specified by the Company. The Term Loan is subject to the same interest rate terms and payment dates as the revolving loans. Under the terms of the Amendment, an additional tier was added such that the Applicable Margin now ranges from 1.25% to 2.00% for LIBOR loans, and 0.25% to 1.00% for Base Rate loans. The Amendment also permits the Company to elect to increase the maximum permitted consolidated net leverage ratio on a one-time basis to 4.00 to 1.00 following the issuance of convertible notes or high yield notes in an initial principal amount of at least $150.0 million. The Company incurred debt issuance costs in the amount of $0.7 million in conjunction with the execution of the Amendment.
We had $125.0 million outstanding under our Term Loan at March 31, 2016. At December 31, 2015, we had $40.0 million in revolving loans outstanding under the Credit Facility. There were no outstanding revolving loans at March 31, 2016. As of March 31, 2016, $200.0 million was available under our Credit Facility, of which $10.0 million was available for the issuance of letters of credit and $20.0 million for swingline loans. We had unamortized debt issuance costs of $1.6 million and $1.0 million at March 31, 2016 and December 31, 2015, respectively. At March 31, 2016, the Term Loan was carried net of unamortized debt issuance costs of $0.7 million in the accompanying Condensed Consolidated Balance Sheets. As of March 31, 2016, we were in compliance with the covenants under our Credit Facility.
Future maturities of principal under the Term Loan will be as follows for the years ending December 31:
2016
$
2,344

2017
5,469

2018
6,250

2019
110,937

 
$
125,000

7. Stock-based Compensation
During the three months ended March 31, 2016, the Company awarded 1,259,072 shares of restricted stock, which vest ratably over a period of twelve quarters beginning on the first day of the second calendar quarter immediately following the grant date. Vesting is conditional upon the recipient remaining a service provider, as defined in the plan document, to the Company at each applicable vesting date.
During the three months ended March 31, 2016, the Company made the following grants of restricted stock, which require the achievement of certain market-based conditions to become eligible to vest as described below:
Three Months Ended March 31, 2016
 
Condition to Become Eligible to Vest
364,651

 
After the grant date and prior to July 1, 2019, the average closing price per share of the Company's common stock equals or exceeds $27.28 for twenty consecutive trading days
364,649

 
After the grant date and prior to July 1, 2019, the average closing price per share of the Company's common stock equals or exceeds $32.15 for twenty consecutive trading days
Shares that become eligible to vest, if any, become Eligible Shares. Such awards granted in February 2016 vest ratably over four calendar quarters beginning on the first day of the next calendar quarter immediately following the date on which they become Eligible Shares. Vesting is conditional upon the recipient remaining a service provider, as defined in the plan document, to the Company through each applicable vesting date.
All stock options and restricted stock awards granted during the quarter ended March 31, 2016 were granted under the Amended and Restated 2010 Equity Incentive Plan, as amended.
8. Commitments and Contingencies
Lease Commitments
The Company leases office facilities and equipment for various terms under long-term, non-cancellable operating lease agreements. The leases expire at various dates through 2028 and provide for renewal options. The agreements generally require the Company to pay for executory costs such as real estate taxes, insurance, and repairs.
In connection with the acquisition of NWP, the Company assumed non-cancellable operating leases for equipment and office space. Office leases assumed include locations in Costa Mesa, California; Tampa, Florida; Ann Arbor, Michigan; and

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Bloomington, Minnesota. The office leases expire at various dates through 2020 and have terms substantially similar to our other office leasing arrangements. Some of the lease agreements assumed contain provisions for future rent increases. For these leases, the total amount of rental payments due over the lease term is charged to rent expense on the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is credited or charged to “Accrued lease liability,” which is included in “Accrued expenses and other current liabilities" or "Other long-term liabilities" in the accompanying Consolidated Balance Sheets, depending upon when the liability is expected to be relieved.
Equipment leases assumed by the Company include leases for equipment used in the general operation of the business and have lease terms expiring throughout 2018. These agreements have terms substantially similar to our other equipment leasing arrangements.
Minimum annual rental commitments under non-cancellable operating leases and total minimum rentals to be received under non-cancellable subleases were as follows at March 31, 2016:
 
Minimum Lease Payments
 
Minimum Rentals to be Received Under Subleases
 
Net Lease Payments
 
(in thousands)
2016
$
9,138

 
$
251

 
$
8,887

2017
11,867

 
140

 
11,727

2018
11,792

 

 
11,792

2019
10,234

 

 
10,234

2020
7,826

 

 
7,826

Thereafter
55,731

 

 
55,731

 
$
106,588

 
$
391

 
$
106,197

Guarantor Arrangements
We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we had no liabilities recorded for these agreements as of March 31, 2016 or December 31, 2015.
In the ordinary course of our business, we include standard indemnification provisions in our agreements with clients. Pursuant to these provisions, we indemnify our clients for losses suffered or incurred in connection with third-party claims that our products infringed upon any U.S. patent, copyright, trademark or other intellectual property right. Where applicable, we generally limit such infringement indemnities to those claims directed solely to our products and not in combination with other software or products. With respect to our products, we also generally reserve the right to resolve any such claims by designing a non-infringing alternative, by obtaining a license on reasonable terms or by terminating our relationship with the client and refunding the client’s fees.
The potential amount of future payments to defend lawsuits or settle indemnified claims under these indemnification provisions is unlimited in certain agreements; however, we believe the estimated fair value of these indemnification provisions is minimal, and, accordingly, we had no liabilities recorded for these agreements as of March 31, 2016 or December 31, 2015.
Litigation
From time to time, in the normal course of our business, we are a party to litigation matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future as the litigation and events related thereto unfold. We expense legal fees as incurred. Insurance recoveries associated with legal costs incurred are recorded when they are deemed probable of recovery.
In March 2015, we were named in a purported class action lawsuit in the United States District Court for the Eastern District of Pennsylvania, styled Stokes v. RealPage, Inc., Case No. 2:15-cv-01520. On January 25, 2016, the court entered an order placing the case in suspense until the United States Supreme Court issues its decision in Spokeo, Inc. v. Robins. In November 2014, we were named in a purported class action lawsuit in the United States District Court for the Eastern District of Virginia, styled Jenkins v. RealPage, Inc., Case No. 3:14cv758. This case has since been transferred to the United States District Court for the Eastern District of Pennsylvania. On January 25, 2016, the court entered an order placing the case in

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suspense until the United States Supreme Court issues its decision in Spokeo, Inc. v. Robins. We intend to defend each case vigorously.
On February 23, 2015, we received from the FTC a Civil Investigative Demand consisting of interrogatories and a request to produce documents relating to our compliance with the Fair Credit Reporting Act. We have responded to the request. At this time, we do not know the scope of the investigation and we do not have sufficient information to evaluate the likelihood or merits of any potential enforcement action, or to predict the outcome or costs of responding to, or the costs, if any, of resolving this investigation.
At March 31, 2016 and December 31, 2015, we had accrued amounts for estimated settlement losses related to legal matters.
We are involved in other litigation matters not described above that are not likely to be material either individually or in the aggregate based on information available at this time. Our view of these matters may change as the litigation and events related thereto unfold.
9. Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by using the weighted average number of common shares outstanding, including potential dilutive shares of common stock assuming the dilutive effect of outstanding stock options and restricted stock using the treasury stock method. Weighted average shares from common share equivalents in the amount of 882,035 and 1,969,119 for the three months ended March 31, 2016 and 2015, respectively, were excluded from the dilutive shares outstanding because their effect was anti-dilutive.
The following table presents the calculation of basic and diluted net loss per share:
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands, except per share amounts)
Numerator:
 
 
 
Net income (loss)
$
2,996

 
$
(1,608
)
Denominator:
 
 
 
Basic:
 
 
 
Weighted average common shares used in computing basic net income (loss) per share
76,656


76,956

Diluted:
 
 
 
Add weighted average effect of dilutive securities:
 
 
 
   Stock options and restricted stock
491

 

Weighted average common shares used in computing diluted net income (loss) per share
77,147


76,956

Net income (loss) per share:
 
 
 
Basic
$
0.04

 
$
(0.02
)
Diluted
$
0.04

 
$
(0.02
)
10. Income Taxes
We make estimates and judgments in determining our provision for income taxes for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Our provision for income taxes in interim periods is based on our estimated annual effective tax rate. We record cumulative adjustments in the quarter in which a change in the estimated annual effective rate is determined. The estimated annual effective tax rate calculation does not include the effect of discrete events that may occur during the year. The effect of these events, if any, is recorded in the quarter in which the event occurs.
Our effective income tax rate was 41.4% and 51.4% for the three months ended March 31, 2016 and 2015, respectively. Our effective rates are higher than the statutory rate primarily because of state income taxes and non-deductible expenses.

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11. Fair Value Measurements
The Company records certain financial liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.
The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 - Inputs are derived from valuation techniques in which one or more of the significant inputs or value drivers are unobservable.
The categorization of an asset or liability within the fair value hierarchy is based on the inputs described above and does not necessarily correspond to the Company’s perceived risk of that asset or liability. Moreover, the methods used by the Company may produce a fair value calculation that is not indicative of the net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments and non-financial assets and liabilities could result in a different fair value measurement at the reporting date.
Assets and liabilities measured at fair value on a recurring basis:
Interest rate swap agreements: The fair value of the Company's interest rate derivatives are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.
Contingent consideration obligations: Contingent consideration obligations consist of potential obligations related to our acquisition activity. The amount to be paid under these obligations is contingent upon the achievement of stipulated operational or financial targets by the business subsequent to acquisition. The fair value of contingent consideration obligations is estimated using a probability weighted discount model which considers the achievement of the conditions upon which the respective contingent obligation is dependent. The probability of achieving the specified conditions is assessed by applying a Monte Carlo weighted-average model. Inputs into the valuation model include a discount rate specific to the acquired entity, a measure of the estimated volatility and the risk free rate of return.
Significant unobservable inputs used in the contingent consideration fair value measurements included the following at March 31, 2016 and December 31, 2015:
 
 
March 31, 2016
 
December 31, 2015
Discount rates
 
15.5% - 44.8%
 
15.8% - 60.0%
Volatility rates
 
37.0% - 50.0%
 
37.0% - 53.5%
Risk free rate of return
 
0.4% - 0.6%
 
0.5% - 0.9%
In addition to the inputs described above, the fair value estimates consider the projected future operating or financial results for the factor upon which the respective contingent obligation is dependent. The fair value estimates are generally sensitive to changes in these projections. We develop the projected future operating results based on an analysis of historical results, market conditions and the expected impact of anticipated changes in our overall business and/or product strategies.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swap valuation in its entirety is classified in Level 2 of the fair value hierarchy.

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The following table discloses the liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015:
 
Fair value at March 31, 2016
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Contingent consideration related to the acquisition of:
 
 
 
 
 
 
 
Indatus
$
568

 
$

 
$

 
$
568

Interest rate swap agreements
79

 

 
79

 

 
$
647

 
$

 
$
79

 
$
568

 
Fair value at December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Contingent consideration related to the acquisition of:
 
 
 
 
 
 
 
Indatus
$
814

 
$

 
$

 
$
814

VRX
27

 

 

 
27

 
$
841

 
$

 
$

 
$
841

There were no assets measured at fair value on a recurring basis at March 31, 2016 or December 31, 2015.
The following table summarizes the changes in the fair value of our Level 3 liabilities for the three months ended March 31, 2016 and 2015:
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Balance at beginning of period
$
841

 
$
4,150

Settlements through cash payments

 
(687
)
Net (gain) loss on change in fair value
(273
)
 
327

Other changes

 
1

Balance at end of period
$
568

 
$
3,791

Gains and losses resulting from changes in the fair value of the above liabilities are included in "General and administrative" expense in the accompanying Condensed Consolidated Statements of Operations.
Assets and liabilities measured at fair value on a non-recurring basis:
During the first quarter of 2015, the Company identified triggering events which required the assessment of impairment for the InstaManager trade name. The fair value of the trade name was determined through an income approach utilizing projected discounted cash flows. This is consistent with the method the Company has employed in prior periods to value other long-lived assets. Impairment of the trade name was determined by comparing its estimated fair value to the related carrying value. The inputs utilized in the discounted cash flow analysis are classified as Level 3 inputs within the fair value hierarchy. Significant unobservable inputs used in deriving the fair value included the royalty rate applied to the projected revenue stream and the discount rate used to determine the present value of the estimated future cash flows. Through the application of this approach, we concluded the trade name had no value at March 31, 2015. The Company believes that the methods and assumptions used to determine the fair value of the trade name are reasonable. See Note 5 for further discussion of this impairment.
There were no assets or liabilities measured at fair value on a non-recurring basis at March 31, 2016. There were no liabilities measured at fair value on a non-recurring basis at March 31, 2015.

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Financial Instruments
The financial assets and liabilities that are not measured at fair value in our Condensed Consolidated Balance Sheets include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, acquisition-related deferred cash obligations, and obligations under the Credit Facility.
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses reported in our Condensed Consolidated Balance Sheets approximates fair value due to the short term nature of these instruments. Acquisition-related deferred cash obligations are recorded on the date of acquisition at their estimated fair value, based on the present value of the anticipated future cash flows. The difference between the amount of the deferred cash obligation to be paid and its estimated fair value on the date of acquisition is accreted over the obligation period. As a result, the carrying value of acquisition-related deferred cash obligations approximates their fair value.
Due to their short-term nature and market-indexed interest rates, we concluded that the carrying value of revolving loans under the Credit Facility approximate their fair value. Similarly, we concluded that the carrying value of the Term Loan approximated its fair value at March 31, 2016.
12. Stockholders' Equity
On May 6, 2014, our board of directors approved a share repurchase program authorizing the repurchase of up to $50.0 million of our outstanding common stock for a period of up to one year after the approval date. In May 2015, our board of directors approved an extension of the share repurchase program to May 6, 2016, permitting the repurchase of up to $50.0 million of our common stock during the period commencing on the extension date and ending on May 6, 2016.
During the three months ended March 31, 2016, the Company repurchased 777,669 shares at a weighted average cost of $20.75 per share and a total cost of $16.1 million. During the year ended December 31, 2015, we repurchased 1,798,199 shares at a weighted average price of $19.51 and a total cost of $35.1 million.
In May 2015, the board of directors authorized the retirement of all shares acquired under the stock repurchase program through May 8, 2015 and any future shares repurchased under the repurchase program. During the three months ended March 31, 2016 we retired 777,669 shares of our common stock. During the year ended December 31, 2015 we retired 2,764,794 shares of our common stock.
13. Derivative Financial Instruments
On March 31, 2016, the Company entered into two interest rate swap agreements ("Swap Agreements"), which are designed to mitigate the Company's exposure to interest rate risk associated with our variable rate debt. The Swap Agreements cover an aggregate notional amount of $75.0 million from March 2016 to September 2019 by replacing the obligation's variable rate with a blended fixed rate of 0.89%. The Company designated the Swap Agreement as a cash flow hedge. The interest rate swaps had an aggregate fair value of $(0.1) million at the end of the first quarter of 2016 and are included in "Other long-term liabilities" in the accompanying Condensed Consolidated Balance Sheets. We estimate that $242 will be reclassified from accumulated other comprehensive loss as an increase to interest expense over the next twelve months.
14. Comprehensive Income
Changes in accumulated balances of other comprehensive income, by component, were as follows for the three months ended March 31, 2016 and 2015, respectively. Amounts are shown net of income tax.
 
 
Three Months Ended March 31, 2016
 
 
Foreign Currency
 
Hedge Instruments
 
Total
 
 
(in thousands)
Balance, beginning of period
 
$
(546
)
 
$

 
$
(546
)
Change in fair value of interest rate swap agreements
 

 
(79
)
 
(79
)
Foreign currency translation adjustments
 
96

 

 
96

Balance, end of period
 
$
(450
)
 
$
(79
)
 
$
(529
)

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Three Months Ended March 31, 2015
 
 
Foreign Currency
 
Hedge Instruments
 
Total
 
 
(in thousands, net of tax)
Balance, beginning of period
 
$
(209
)
 
$

 
$
(209
)
Foreign currency translation adjustments
 
(164
)
 

 
(164
)
Balance, end of period
 
$
(373
)
 
$

 
$
(373
)
15. Employee Benefit Plans
In 1998, our board of directors approved a defined contribution plan that provides retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code. Our 401(k) Plan (“Plan”) covers substantially all employees who meet a minimum service requirement.
The Company sponsors various retirement plans for its non-U.S. employees. Accrued liabilities related to obligations under these plans totaled $0.7 million as of March 31, 2016 and December 31, 2015 and is included in the line, "Other long-term liabilities" in the accompanying Condensed Consolidated Balance Sheets.
16. Subsequent Events
On April 26, 2016, our board of directors approved a one-year extension of the share repurchase program. The terms of the extension permit the repurchase of up to $50.0 million of our common stock during the period commencing on the extension day and ending on May 6, 2017.
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Statements preceded by, followed by, or that otherwise include the words “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms are generally forward-looking in nature and not historical facts. These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any anticipated results, performance, or achievements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” in Part II, Item 1A of this report. You should carefully review the risks described herein and in the other documents we file from time to time with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for fiscal year 2015. You should not place undue reliance on forward-looking statements herein, which speak only as of the date of this report. Except as required by law, we disclaim any intention, and undertake no obligation, to revise any forward-looking statements, whether as a result of new information, a future event, or otherwise.
Overview
We are a leading provider of on demand software and software-enabled services for the rental housing and vacation rental industries. Our broad range of property management solutions enables owners and managers of a wide variety of single family, multifamily, and vacation rental property types to enhance the visibility, control, and profitability of each portion of the renter life cycle and operation of a property. By integrating and streamlining a wide range of complex processes and interactions among the rental housing and vacation rental ecosystem of owners, managers, prospects, renters, and service providers, our platform helps optimize the property management process, improve the user experience, increase net operating income, and reduce costs for professional property managers and property owners.
The substantial majority of our revenue is derived from sales of our on demand software solutions. We also derive revenue from our professional and other services. A small percentage of our revenue is derived from sales of our on premise software solutions to our existing on premise clients. Our on demand software solutions are sold pursuant to subscription license agreements and our on premise software solutions are sold pursuant to term or perpetual license and associated maintenance agreements. We price our solutions based primarily on the number of units the client manages with our solutions. For our insurance-based solutions, we earn revenue based on a commission rate that considers earned premiums; agent commission; incurred losses; and premiums and profits retained by our underwriter. Our transaction-based solutions are priced based on a fixed rate per transaction. We sell our solutions through our direct sales organization and derive substantially all of our revenue from sales in the United States.
As of March 31, 2016, over 12,200 clients used one or more of our on demand software solutions to help manage the operations of approximately 11.0 million multifamily, single family, or vacation rental units. Our clients include each of the ten

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largest multifamily property management companies in the United States, ranked as of January 1, 2016 by the National Multifamily Housing Council, based on the number of units managed. While the use and transition to on demand software solutions in the rental housing industry is growing rapidly, we believe it remains at a relatively early stage of adoption. Additionally, there is a low level of penetration of our on demand software solutions in our existing client base. We believe these factors present us with significant opportunities to generate revenue through sales of additional on demand software solutions. Our existing and potential clients base their decisions to invest in our solutions on a number of factors, including general economic conditions.
Our company was formed in 1998 to acquire Rent Roll, Inc., which marketed and sold on premise property management systems for the conventional and affordable multifamily rental housing markets. In June 2001, we released OneSite, our first on demand property management system. Since 2002, we have expanded our on demand software and software-enabled services to include property management; leasing and marketing; resident services; and asset optimization capabilities. In addition to the multifamily markets, we now serve the single family, senior living, student living, military housing, and vacation rental markets. In addition, since July 2002, we have completed 33 acquisitions of complementary technologies to supplement our internal product development and sales and marketing efforts and expand the scope of our solutions; the types of rental housing and vacation rental properties served by our solutions; and our client base. In connection with this expansion and these acquisitions, we have committed greater resources to developing and increasing sales of our platform of on demand solutions. As of March 31, 2016, we had approximately 4,200 employees.
Solutions and Services
Our platform is designed to serve as a single system of record for all of the constituents of the rental housing ecosystem, including owners, managers, prospects, renters and service providers, and to support the entire renter life cycle, from prospect to applicant to residency or guest to post-residency or post-stay. Common authentication, work flow and user experience across solution categories enables each of these constituents to access different applications as appropriate for their role.
Our platform consists of four primary categories of solutions: Property Management, Leasing and Marketing, Resident Services, and Asset Optimization. These solutions provide complementary sales and marketing, asset optimization, risk mitigation, billing and utility management and spend management capabilities that collectively enable our clients to manage the stages of the renter life cycle. Each of our solutions categories includes multiple product centers that provide distinct capabilities and can be licensed separately or as a bundled package. Each product center is integrated with a central repository of prospect, renter, and property data. In addition, our open architecture allows third-party applications to access our solutions using our RealPage Exchange platform.
We offer different versions of our platform for different types of properties. For example, our platform supports the specific and distinct requirements of:
conventional single family properties (four units or less);
conventional multifamily properties (five or more units);
affordable Housing and Urban Development, or HUD, properties;
affordable tax credit properties;
rural housing properties;
privatized military housing;
commercial;
student housing;
senior living; and
vacation rentals.
Property Management
Our property management solutions are typically referred to as Enterprise Resource Planning, or ERP, systems. These solutions manage core property management business processes, including leasing, accounting, budgeting, purchasing, facilities management, document management, and support and advisory services, and include a central database of prospect, applicant, renter, and property information that is accessible in real time by our other solutions. Our property management solutions also interface with most popular general ledger accounting systems through our RealPage Exchange platform. This makes it possible for clients to deploy our solutions using our accounting system or a third-party accounting system. The property management solution category consists of five primary solutions: OneSite, Propertyware, Kigo, Spend Management Solutions, and The RealPage Cloud.

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Leasing and Marketing
Leasing and marketing solutions are aimed at optimizing marketing spend and the leasing process. These solutions manage core leasing and marketing processes, including websites, paid lead generation, organic lead generation, lead management, automated lead closure, lead analytics, real-time unit availability, automated online apartment leasing, and applicant screening. The leasing and marketing solutions category consists of seven primary solutions: Online Leasing, Contact Center, LeaseStar Platform, LeaseStar Marketing Management, MyNewPlace, Senior Marketing Management, and Renter Screening.
Resident Services
Resident services solutions provide a platform to optimize the management of current renters. These solutions manage core renter management business processes including, utility billing; renter payment processing, service requests, and lease renewals; renter’s insurance; and consulting and advisory services. The resident services solutions category consists of six primary solutions: Utility Management, Payments, Resident Portal, Contact Center Maintenance, Indatus, and Renter’s Insurance.
Asset Optimization
Asset optimization solutions are aimed at optimizing property financial and operational performance. These solutions manage core asset management and business intelligence processes, including real-time yield management, revenue growth forecasting, key variable sensitivity forecasting, and operating metric benchmarking. The asset optimization solutions category consists of two primary solutions: Yield Management and Business Intelligence.
Professional services
We have developed repeatable, cost-effective consulting and implementation services to assist our clients in taking advantage of the capabilities enabled by our platform. Our consulting and implementation methodology leverages the nature of our on demand software architecture, the industry-specific expertise of our professional services employees and the design of our platform to simplify and expedite the implementation process. Our consulting and implementation services include project and application management procedures, business process evaluation, business model development, and data conversion. Our consulting teams work closely with clients to facilitate the smooth transition and operation of our solutions.
We also offer a variety of training programs for training administrators and onsite property managers on the use of our solutions and on current issues in the property management industry. Training options include regularly hosted classroom and online instruction (through our online learning courseware) as well as online seminars, or webinars. We also enable our clients to integrate their own training content with our content to deliver an integrated and customized training program for their on-site property managers.
Recent Acquisitions
2016 Acquisitions
NWP Services Corporation
In March 2016, we acquired all of the issued and outstanding stock of NWP Services Corporation ("NWP"). NWP provides a full range of utility management services, including resident billing; payment processing; utility expense management; analytics and reporting; sub-metering and maintenance; and regulatory compliance. The primary products offered by NWP include Utility Logic, Utility Smart, Utility Genius, SmartSource, and NWP Sub-meter. NWP will be integrated into our resident services product family. The integrated platform will enable property owners and managers to increase the collection of rent utilities and energy recovery. We acquired NWP's issued and outstanding stock for a purchase price of $69.0 million. The purchase price consisted of a cash payment of $59.0 million at closing, net of cash acquired of $0.1 million; deferred cash obligations of $7.2 million, payable over a period of three years following the date of acquisition; and other amounts totaling $3.2 million, consisting of payments to certain employees and shareholders of NWP which are expected to be remitted over a short-term period. Through the NWP acquisition, we have obtained a significantly larger share of the utility metering services market. We expect to realize significant synergies by integrating NWP into our existing operating structure and with our Velocity product.
2015 Acquisitions
Indatus
In June 2015, we acquired certain assets from ICIM Corporation, including the Answer Automation, Call Tracker, and Zip Digital products marketed under the name Indatus. The Indatus offerings are software-as-a-service products that provide automated answering services, marketing spend analysis tools, and other features which enhance the ability of managers of multifamily properties to communicate with their residents. We plan to integrate the Indatus assets with our existing contact center and maintenance products, increasing the features of these existing solutions. We acquired Indatus for a purchase price

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of $49.4 million, consisting of a cash payment of $43.8 million at closing, deferred cash payments of up to $5.0 million payable over nineteen months after the acquisition date and contingent cash payments of up to $2.0 million, in the aggregate, if certain revenue targets are met for the twelve month periods ending June 30, 2016 and 2017.
VRX
In June 2015, we acquired certain assets from RJ Vacations, LLC and Switch Development Corporation, including the VRX product ("VRX"). VRX is a software-as-a-service application which allows vacation rental management companies to manage the cleaning and turning of units; accounting; and document management. VRX will augment our existing line of solutions offered to the vacation rental industry, and we plan to integrate it with our Kigo solution. We acquired VRX for a purchase price of $2.0 million, consisting of a cash payment of $1.5 million at closing and a contingent cash payment of up to $0.5 million. Payment of the contingent cash obligation is dependent upon the achievement of certain subscription or booking activity targets and is subject to adjustments specified in the acquisition agreement related to the sellers' indemnification obligations.
The purchase agreement also provides for us to make additional contingent cash payments of up to $3.0 million. Payment of the additional contingent cash payments is dependent upon the achievement of certain revenue targets during the twelve month periods ended December 31, 2016, 2017 and 2018 and the sellers providing certain services during a specified period following the acquisition date. Due to the post-acquisition compensation nature of the additional contingent cash payments, they were not included in the acquisition consideration.
Key Business Metrics
In addition to traditional financial measures, we monitor our operating performance using a number of financially and non-financially derived metrics that are not included in our condensed consolidated financial statements. We monitor the key performance indicators reflected in the following table:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
(in thousands, expect dollar per unit data)
Revenue:
 
 
 
 
Total revenue
 
$
128,383

 
$
110,470

On demand revenue
 
123,411

 
106,460

On demand revenue as a percentage of total revenue
 
96.1
%
 
96.4
%
Ending on demand units
 
10,999

 
9,700

Average on demand units
 
10,783

 
9,630

Non-GAAP on demand revenue
 
$
123,068

 
$
105,994

Non-GAAP on demand revenue per average on demand unit
 
$
48.10

 
$
44.03

Non-GAAP on demand annual client value
 
$
529,052

 
$
427,091

Adjusted EBITDA
 
$
27,452

 
$
20,060

Adjusted EBITDA as a percentage of total revenue
 
21.4
%
 
18.2
%
On demand revenue: This metric represents the license and subscription fees relating to our on demand software solutions, typically licensed over one year terms; commission income from sales of renter’s insurance policies, and transaction fees for certain of our on demand software solutions. We consider on demand revenue to be a key business metric because we believe the market for our on demand software solutions represents the largest growth opportunity for our business.
On demand revenue as a percentage of total revenue: This metric represents on demand revenue for the period presented divided by total revenue for the same period. We use on demand revenue as a percentage of total revenue to measure our success in executing our strategy to increase the penetration of our on demand software solutions and expand our recurring revenue streams attributable to these solutions. We expect our on demand revenue to remain a significant percentage of our total revenue although the actual percentage may vary from period to period due to a number of factors, including the timing of acquisitions; professional and other revenues; and on premise perpetual license sales and maintenance fees.
Ending on demand units: This metric represents 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 clients 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.

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Non-GAAP on demand revenue: This metric represents on demand revenue plus acquisition-related and other deferred revenue adjustments. We use this metric to evaluate our on demand revenue as we believe its inclusion provides a more accurate depiction of on demand revenue arising from our strategic acquisitions.
The following provides a reconciliation of GAAP to non-GAAP on demand revenue: 
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
On demand revenue
$
123,411

 
$
106,460

Acquisition-related and other deferred revenue adjustments
(343
)
 
(466
)
Non-GAAP on demand revenue
$
123,068

 
$
105,994

Non-GAAP on demand revenue per average on demand unit: This metric represents non-GAAP on demand revenue for the period presented, including pro forma on demand revenue for acquisitions acquired during the period, divided by average on demand units for the same period. For interim periods, the calculation is performed on an annualized basis. We calculate average on demand units as the average of the beginning and ending on demand units for each quarter in the period presented. We monitor this metric to measure our success in increasing the number of on demand software solutions utilized by our clients to manage rental housing units, our overall revenue, and profitability.
Non-GAAP on demand annual client value ("ACV"): This metric represents management's estimate of the current annual run-rate value of on demand client relationships. ACV is calculated by multiplying ending on demand units by annualized non-GAAP on demand revenue per average on demand unit.
Adjusted EBITDA: We define Adjusted EBITDA as net income (loss) plus acquisition-related and other deferred revenue adjustments; depreciation, asset impairment, and loss on disposal of assets; amortization of intangible assets; acquisition related (income) expense (including any purchase accounting adjustments); net interest expense; income tax expense (benefit); stock-based compensation expense; non-recurring and duplicative expenses related to the relocation of our headquarters; and any impact related to certain litigation, such as our prior litigation with Yardi Systems, Inc. (including related insurance litigation and settlement costs).
The following provides a reconciliation of net income (loss) to Adjusted EBITDA:
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Net income (loss)
$
2,996

 
$
(1,608
)
Acquisition-related and other deferred revenue
(343
)
 
(466
)
Depreciation, asset impairment, and loss on disposal of assets
5,496

 
6,150

Amortization of intangible assets
7,111

 
5,580

Acquisition-related (income) expense
(57
)
 
1,092

Interest expense, net
719

 
267

Income tax expense (benefit)
2,114

 
(1,704
)
Litigation-related expense

 
2

Headquarters relocation costs
1,025

 

Stock-based compensation expense
8,391

 
10,747

Adjusted EBITDA
$
27,452

 
$
20,060

Adjusted EBITDA as a percentage of total revenue: Adjusted EBITDA as a percentage of total revenue is calculated by dividing Adjusted EBITDA by total revenue for the same period. This metric provides us with a measure of our success in growing our business which excludes non-cash charges and certain other items which cause period-to-period fluctuations that do not correlate to our underlying business operations.
Non-GAAP Financial Measures
We believe that the non-GAAP financial measures defined above are useful to investors and other users of our financial statements in evaluating our operating performance because they provide additional tools to compare business performance across companies and periods. We believe that:

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these non-GAAP financial measures provide investors and other users of our financial information consistency and comparability with our past financial performance, facilitate period-to-period comparisons of operations and facilitate 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 (including any purchase accounting adjustments); non-recurring and duplicative expenses related to the relocation of our headquarters; and any impact related to certain litigation such as our prior litigation with Yardi Systems, Inc. (including related insurance litigation and settlement costs); from non-GAAP earnings measures, such as Adjusted EBITDA and non-GAAP net income, 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 the non-GAAP financial measures defined above in conjunction with traditional GAAP financial 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 non-GAAP financial measures as measures of operating performance. Non-GAAP financial measures should not be considered substitutes for other measures of financial performance or liquidity 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 changes in, or cash requirements for, our working capital; and that they do not reflect our capital expenditures or future requirements for capital expenditures. We compensate for the inherent limitations associated with using non-GAAP financial measures through disclosure of these limitations, presentation of our financial statements in accordance with GAAP, and reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.
Key Components of Our Results of Operations
Revenue
We derive our revenue from three primary sources: our on demand software solutions, our on premise software solutions, and our professional and other services.
On demand revenue: Revenue from our on demand software solutions is comprised of license and subscription fees relating to our on demand software solutions, typically licensed for one year terms; commission income from sales of renter’s insurance policies; and transaction fees for certain on demand software solutions, such as payment processing, spend management, and billing services. Typically, we price our on demand software solutions based primarily on the number of units or beds the client manages with our solutions. For our insurance based solutions, our agreement provides for a fixed commission on earned premiums related to the policies sold by us. The agreement also provides for a contingent commission to be paid to us in accordance with the agreement. Our transaction-based solutions are priced based on a fixed rate per transaction.
On premise revenue: Our on premise software solutions are distributed to our clients and maintained locally on the client's hardware. Revenue from our on premise software solutions is comprised of license fees under term and perpetual license agreements. Typically, we have licensed our on premise software solutions pursuant to term license agreements with an initial term of one year that include maintenance and support. clients can renew their term license agreement for additional one-year terms at renewal price levels.
We no longer actively market our legacy on premise software solutions to new clients, and only license these solutions to a small portion of our existing on premise clients as they expand their portfolio of rental housing properties. While we intend to support our acquired on premise software solutions, we expect that many of the clients who license these solutions will transition to our on demand software solutions over time.
Professional and other revenue: Revenue from professional and other services consists of consulting and implementation services; training; and other ancillary services. We complement our solutions with professional and other services for our clients willing to invest in enhancing the value or decreasing the implementation time of our solutions. Our professional and other services are typically priced as time and material engagements.

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Cost of Revenue
Cost of revenue consists primarily of personnel costs related to our operations; support services; training and implementation services; expenses related to the operation of our data centers; and fees paid to third-party service providers. Personnel costs include salaries, bonuses, stock-based compensation, and employee benefits. Cost of revenue also includes an allocation of facilities costs; overhead costs and depreciation; as well as amortization of acquired technology related to strategic acquisitions and amortization of capitalized development costs. We allocate facilities, overhead costs, and depreciation based on headcount.
Operating Expenses
We classify our operating expenses into three categories: product development; sales and marketing; and general and administrative. Our operating expenses primarily consist of personnel costs; costs for third-party contracted development; marketing; legal; accounting and consulting services; and other professional service fees. Personnel costs for each category of operating expenses include salaries, bonuses, stock-based compensation, and employee benefits for employees in that category. In addition, our operating expenses include an allocation of our facilities costs; overhead costs and depreciation based on headcount for that category; as well as amortization of purchased intangible assets resulting from our acquisitions.
Product development: Product development expense consists primarily of personnel costs for our product development employees and executives and fees to contract development vendors. Our product development efforts are focused primarily on increasing the functionality and enhancing the ease of use of our on demand software solutions and expanding our suite of on demand software solutions. In 2008 and 2011, we established product development and service centers in Hyderabad, India and Manila, Philippines, respectively, to take advantage of strong technical talent at lower personnel costs compared to the United States. In 2015, we expanded our operations in the Philippines by opening an office in Cebu City.
Sales and marketing: Sales and marketing expense consists primarily of personnel costs for our sales marketing and business development employees and executives; information technology; travel and entertainment; and marketing programs. Marketing programs consist of amounts paid for services for search engine optimization ("SEO") and search engine marketing (“SEM”); renter’s insurance; other advertising, trade shows, user conferences, public relations, industry sponsorships and affiliations; and product marketing. In addition, sales and marketing expense includes amortization of certain purchased intangible assets, including client relationships and key vendor and supplier relationships, obtained in connection with our acquisitions.
General and administrative: General and administrative expense consists of personnel costs for our executives; finance and accounting; human resources; management information systems; and legal personnel, as well as legal, accounting and other professional service fees; and other corporate expenses.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base these estimates and assumptions on historical experience, projected future operating or financial results or on various other factors that we believe to be reasonable and appropriate under the circumstances. We reconsider and evaluate our estimates and assumptions on an on-going basis. Accordingly, actual results may differ significantly from these estimates.
We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates, and therefore, could have the greatest potential impact on our condensed consolidated financial statements:
Revenue recognition;
Deferred revenue;
Fair value measurements;
Accounts receivable and related allowance;
Purchase accounting and contingent consideration;
Goodwill and other intangible assets with indefinite lives;
Contingent liabilities;
Impairment of long-lived assets;
Intangible assets with finite lives;
Stock-based compensation;
Income taxes, including deferred tax assets and liabilities; and
Capitalized product development costs.

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Derivative Financial Instruments
The Company is exposed to interest rate risk related to our variable rate debt. The Company manages this risk through a program that may include the use of interest rate derivatives, the counterparties to which are major financial institutions. Our objective in using interest rate derivatives is to add stability to interest cost by reducing our exposure to interest rate movements. We do not use derivative instruments for trading or speculative purposes.
Our interest rate derivatives are designated as cash flow hedges and are carried in the Condensed Consolidated Balance Sheets at their fair value. Unrealized gains and losses resulting from changes in the fair value of these instruments are classified as either effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income ("AOCI"), while the ineffective portion is recorded as a component of interest expense in the period of change. Amounts reported in AOCI related to interest rate derivatives are reclassified into interest expense as interest payments are made on our variable-rate debt. If an interest rate derivative agreement is terminated prior to its maturity, the amounts previously recorded in AOCI are recognized into earnings over the period that the forecasted transactions impact earnings. If the hedging relationship is discontinued because it is probable that the forecasted transactions will not occur according to our original strategy, any related amounts previously recorded in AOCI are recognized in earnings immediately.
Inventory
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. The Company establishes inventory allowances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable values based on assumptions about forecasted demand, open purchase commitments, and market conditions.
Recently Adopted Accounting Standards
We adopted Accounting Standards Update ("ASU") 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Agreements in the first quarter of 2016. As a result of our retrospective adoption of these standards, we present notes payable net of unamortized debt issuance costs in the Condensed Consolidated Balance Sheets. Prior to adoption of this ASU, such issuance costs were included in other assets. Our adoption of this standard did not result in a reclassification of previously reported amounts, as we did not have outstanding term notes at December 31, 2015. As required, debt issuance costs related to our secured revolving credit facility continue to be presented in other assets in the Condensed Consolidated Balance Sheets.
In November 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement-period adjustments. This ASU requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, be recognized in the reporting period in which the adjustment is identified. We adopted ASU 2015-16 in the first quarter of 2016. Adoption of this standard did not have a significant impact on our financial reporting in the current period.
In November 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires companies to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet instead of the previous requirement to separate deferred income tax assets and liabilities into current and noncurrent amounts. As permitted in this ASU, we early adopted ASU 2015-17 effective December 31, 2015 on a retrospective basis.
In April 2015, The FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to clarify the customer's accounting for fees paid in a cloud computing arrangement and whether such an arrangement contains a software license or is solely a service contract. We adopted this ASU in the first quarter of 2016 on a prospective basis. Although we do not anticipate the adoption of this update will have a material impact on our financial statements, the classification of future software leases that include a hosting arrangement may be different than under the previous guidance.

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Results of Operations
The following tables set forth our unaudited results of operations for the specified periods in thousands, except per share data, and as a percentage of our revenue for the respective periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
Condensed Consolidated Statements of Operations
 
Three Months Ended March 31,
 
2016
 
2016
 
2015
 
2015
 
(in thousands, except per share and ratio amounts)
Revenue:
 
 
 
 
 
 
 
On demand
$
123,411

 
96.1
 %
 
$
106,460

 
96.4
 %
On premise
772

 
0.6

 
741

 
0.7

Professional and other
4,200

 
3.3

 
3,269

 
2.9

Total revenue
128,383

 
100.0

 
110,470

 
100.0

Cost of revenue(1)
54,748

 
42.6

 
47,562

 
43.1

Gross profit
73,635

 
57.4

 
62,908

 
56.9

Operating expense:
 
 
 
 
 
 
 
Product development(1)
17,272

 
13.5

 
17,977

 
16.3

Sales and marketing(1)
32,199

 
25.1

 
29,113

 
26.3

General and administrative(1)
18,346

 
14.3

 
18,336

 
16.6

Impairment of identified intangible assets

 

 
527

 
0.5

Total operating expense
67,817

 
52.9

 
65,953

 
59.7

Operating income (loss)
5,818

 
4.5

 
(3,045
)
 
(2.8
)
Interest expense and other, net
(708
)
 
(0.6
)
 
(267
)
 
(0.2
)
Income (loss) before income taxes
5,110

 
3.9

 
(3,312
)
 
(3.0
)
Income tax expense (benefit)
2,114

 
1.6

 
(1,704
)
 
(1.5
)
Net income (loss)
$
2,996

 
2.3

 
$
(1,608
)
 
(1.5
)
Net income (loss) per share attributable to common stockholders
 
 
 
 
 
 
 
Basic
$
0.04

 
 
 
$
(0.02
)
 
 
Diluted
$
0.04

 
 
 
$
(0.02
)
 
 
Weighted average shares used in computing net income (loss) per share attributable to common stockholders
 
 
 
 
 
 
 
Basic
76,656

 
 
 
76,956

 
 
Diluted
77,147

 
 
 
76,956

 
 
 
 
 
 
 
 
 
 
(1)Includes stock-based compensation expense as follows:
 
 
 
 
 
 
 
Cost of revenue
$
751

 
 
 
$
1,234

 
 
Product development
1,449

 
 
 
2,719

 
 
Sales and marketing
2,974

 
 
 
3,789

 
 
General and administrative
3,217

 
 
 
3,005

 
 




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Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015
Revenue
 
Three Months Ended March 31,
 
2016
 
2015
 
Change
 
% Change
 
(in thousands, except per unit data)
 
 
Revenue:
 
 
 
 
 
 
 
On demand
$
123,411

 
$
106,460

 
$
16,951

 
15.9
%
On premise
772

 
741

 
31

 
4.2

Professional and other
4,200

 
3,269

 
931

 
28.5

Total revenue
$
128,383

 
$
110,470

 
$
17,913

 
16.2

On demand unit metrics:
 
 
 
 
 
 
 
Ending on demand units
10,999

 
9,700

 
1,299

 
13.4

Average on demand units
10,783

 
9,630

 
1,153

 
12.0

Non-GAAP revenue metrics:
 
 
 
 
 
 
 
Non-GAAP on demand revenue
$
123,068

 
$
105,994

 
$
17,074

 
16.1

Annualized non-GAAP on demand revenue per average on demand unit
$
48.10

 
$
44.03

 
$
4.07

 
9.2

Non-GAAP on demand annual client value
$
529,052

 
$
427,091

 
$
101,961

 
23.9

The change in total revenue for the three months ended March 31, 2016, as compared to the same period in 2015, was due to the following:
On demand revenue. On demand revenue represented 96.1% of our total revenue during the three months ended March 31, 2016, as compared to 96.4% during the same period in 2015. Our on demand revenue increased $17.0 million, or 15.9%, during the first quarter of 2016, as compared to the same period in 2015. This growth was driven by an increase in the number of rental units managed with one or more of our solutions, greater client adoption across our platform of solutions, and our recent acquisitions. This client adoption contributed to an increase in our revenue per average on demand unit from $44.03 to $48.10, or 9.2%, during the three months ended March 31, 2016, as compared to the same period in 2015. Overall revenue growth continues to benefit from our investments in on demand data processing infrastructure, product development, and sales force.
On demand revenue associated with our property management solutions grew $3.6 million, or 10.9%, during the three months ended March 31, 2016, as compared to the same period in 2015. This growth is primarily attributable to increased sales and client adoption across most of our property management solutions. NWP's SmartSource solution also contributed to this growth.
Despite growth of our Screening, Online Leasing and Website solutions, total on demand revenue from our leasing and marketing solutions for the three months ended March 31, 2016 decreased $0.6 million, or 1.9%, year-over-year. This decrease is primarily attributable to lower transactional revenue from our paid lead generation and contact center solutions, which continue to encounter headwinds from both macro-economic conditions in the multifamily industry and increased competition.
On demand revenue from our resident services solutions continued to experience strong growth during the first quarter of 2016, increasing $12.0 million, or 36.3%, as compared to the same period in 2015. This increase was driven by growth of our Renter's Insurance, Velocity, and Payments solutions and was supplemented by incremental revenues from our recent acquisitions.
On demand revenue derived from our asset optimization solutions grew $2.0 million, or 18.1%, during the three months ended March 31, 2016, as compared to the same period in 2015. Our asset optimization solutions continue to benefit from the strong growth of our Business Intelligence and YieldStar solutions.
On premise revenue. On premise revenue for the three months ended March 31, 2016 was $0.8 million, which is consistent with on premise revenue during the same period of 2015. We no longer actively market our legacy on premise software solutions to new clients and only market and support our acquired on premise software solutions. We expect on premise revenue to decline over time as we transition acquired on premise clients to our on demand property management solutions.

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Professional and other revenue. Professional and other revenue increased $0.9 million for the three months ended March 31, 2016, as compared to the same period in 2015. This growth was primarily due to an increase in revenue from consulting and training services related to the implementation of our solutions.
On demand unit metrics. As of March 31, 2016, one or more of our on demand solutions was utilized in the management of 11.0 million rental property units, representing an increase of 1.3 million units, or 13.4%, year-over-year. The increase in the number of rental property units managed by one or more of our on demand solutions was due to new client sales, marketing efforts to existing clients, and acquisitions completed in 2015 and 2016. Acquisitions accounted for approximately 0.7 million units, or 6.7%, of total ending on demand units.
Cost of Revenue
 
Three Months Ended March 31,
 
2016
 
2015
 
Change
 
% Change
 
(in thousands)
 
 
Cost of revenue
$
47,140

 
$
41,109

 
$
6,031

 
14.7
 %
Stock-based compensation
751

 
1,234

 
(483
)
 
(39.1
)
Depreciation and amortization
6,857

 
5,219

 
1,638

 
31.4

Total cost of revenue
$
54,748

 
$
47,562

 
$
7,186

 
15.1

Cost of revenue. Cost of revenue, excluding stock-based compensation and depreciation and amortization, increased $6.0 million for the three months ended March 31, 2016, as compared to the same period in 2015. During the period direct costs increased $2.4 million, primarily driven by higher transaction volumes from our Payments solution and our recent acquisitions. Personnel expense, technology and facility costs increased $2.9 million, reflecting our recent acquisitions and costs to support our growth initiatives. Higher consulting fees of $0.4 million and other expense of $0.3 million also contributed to this increase.
Gross profit increased $10.7 million, or 17.1%, in the first quarter of 2016, as compared to the same period in the prior year, and was up 50 basis points as a percentage of total revenue. This expansion is the result of revenue growth from higher-margin solutions, such as Renter's Insurance and data analytic solutions, combined with our cost containment strategies. These cost reductions were partially offset by higher depreciation and amortization expense.
Operating Expenses
 
Three Months Ended March 31,
 
2016
 
2015
 
Change
 
% Change
 
(in thousands)
 
 
Product development
$
14,623

 
$
14,002

 
$
621

 
4.4
 %
Stock-based compensation
1,449

 
2,719

 
(1,270
)
 
(46.7
)
Depreciation
1,200

 
1,256

 
(56
)
 
(4.5
)
Total product development expense
$
17,272

 
$
17,977

 
$
(705
)
 
(3.9
)
Product development.  Product development expense, excluding stock-based compensation and depreciation, increased $0.6 million for the three months ended March 31, 2016, as compared to the same period in 2015. Changes during the period include an increase in personnel costs of $1.1 million, primarily related to incremental headcount from our acquisitions and investment in our international labor force. Other expense decreased by $0.5 million year-over-year, primarily related to an impairment charge recognized in the first quarter of 2015.
Product development expense as a percentage of revenue decreased from 16.3% to 13.5% during the three months ended March 31, 2016, as compared to the same period in 2015. Expense efficiencies are primarily attributable to our international expansion and the lower cost of international labor. Our international headcount increased by 11.9% between the periods; however, the overall labor mix of international and domestic employees remained consistent with the prior period, primarily due to our recent acquisitions.

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Three Months Ended March 31,
 
2016
 
2015
 
Change
 
% Change
 
(in thousands)
 
 
Sales and marketing
$
25,673

 
$
22,059

 
$
3,614

 
16.4
 %
Stock-based compensation
2,974

 
3,789

 
(815
)
 
(21.5
)
Depreciation and amortization
3,552

 
3,265

 
287

 
8.8

Total sales and marketing expense
$
32,199

 
$
29,113

 
$
3,086

 
10.6

Sales and marketing. Sales and marketing expense, excluding stock-based compensation and depreciation and amortization, increased $3.6 million for the three months ended March 31, 2016, as compared to the same period in 2015. This change was primarily attributable to increased personnel expense of $1.7 million, resulting from our acquisitions and our continued efforts to strengthen and expand our sales force. The growth of our sales force also led to an increase in technology and facility expense of $0.3 million during the period. In addition, marketing program costs increased $1.6 million to accelerate client demand across our portfolio of solutions.
Sales and marketing expense as a percentage of total revenue decreased 120 basis points in the first quarter of 2016, as compared to the same period in 2015. Expense leverage was tempered by continued investment in our sales team. The number of sales representatives increased from 318 at March 31, 2015, to 400 at March 31, 2016. The majority of this investment continues to be in the small to medium business market, as well as in our lead generation teams.
 
Three Months Ended March 31,
 
2016
 
2015
 
Change
 
% Change
 
(in thousands)
 
 
General and administrative
$
14,131

 
$
14,460

 
$
(329
)
 
(2.3
)%
Stock-based compensation
3,217

 
3,005

 
212

 
7.1

Depreciation
998

 
871

 
127

 
14.6

Total general and administrative expense
$
18,346

 
$
18,336

 
$
10

 
0.1

General and administrative. General and administrative expense, excluding stock-based compensation and depreciation, decreased $0.3 million for the three months ended March 31, 2016 year-over-year. This decrease was primarily due to changes in the fair value of our acquisition-related liabilities of $0.7 million and lower personnel expense of $0.3 million. These decreases were partially offset by information technology infrastructure costs of $0.3 million and an increase in professional and other expense of $0.4 million.
General and administrative expense decreased from 16.6% to 14.3% as a percentage of total revenue during the three months ended March 31, 2016, as compared to the first quarter of 2015. Leverage was realized primarily through our cost containment strategies and a decrease in our acquisition-related liabilities, partially offset by incremental headcount from our recent acquisitions.
Interest Expense and Other, Net
The increase in interest expense and other, net for the three months ended March 31, 2016, as compared to the same period in 2015, is primarily due to higher average balances during the current period related to the issuance of the Term Loan in February 2016.
Provision for Taxes
We compute our provision for income taxes on a quarterly basis by applying the estimated annual effective tax rate to income from recurring operations and other taxable income. Our effective income tax rate was 41.4% and 51.4% for the three months ended March 31, 2016, and 2015. Our effective rates are higher than the statutory rate primarily because of state income taxes and non-deductible expenses.
Liquidity and Capital Resources
Our primary sources of liquidity as of March 31, 2016 consisted of $57.5 million of cash and cash equivalents, $200.0 million available under our revolving line of credit and $42.1 million of working capital (excluding $57.5 million of cash and cash equivalents and $82.8 million of deferred revenue).
Our principal uses of liquidity have been to fund our operations, working capital requirements, capital expenditures and acquisitions, to service our debt obligations, and to repurchase shares of our common stock. We expect that working capital requirements, capital expenditures, acquisitions, debt service, and share repurchases will continue to be our principal needs for liquidity over the near term. During 2016, we expect to incur elevated capital expenditures of approximately $80 million

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primarily related to our corporate headquarters and data center moves. We also expect to receive approximately $19 million of tenant improvement reimbursement from the property owner of our corporate headquarters facility which will be reported as a source of cash from operating activities. We expect to generate returns on these investments by incurring lower future rent expense per employee and long-term transaction processing scale. Starting in 2017, we expect capital expenditures to return to more normalized levels which we target at approximately 5% of revenue for maintenance and growth initiatives. In addition, we have made several acquisitions in which a portion of the cash purchase price is payable at various times through 2019. We expect to fund these obligations from cash provided by operating activities.
We believe that our existing cash and cash equivalents, working capital (excluding deferred revenue and cash and cash equivalents) and our cash flows from operations are sufficient to fund our operations, working capital requirements and planned capital expenditures and to service our debt obligations for at least the next twelve months. Our future working capital requirements will depend on many factors, including our rate of revenue growth, the timing and size of acquisitions, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts, the timing of introductions of new solutions and enhancements to existing solutions and the continuing market acceptance of our solutions. We may enter into acquisitions of complementary businesses, applications or technologies in the future that could require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us, or at all.
As of December 31, 2015, we had gross federal and state NOL carryforwards of approximately $161.0 million and $67.5 million, respectively. In connection with our acquisition of NWP, we have recorded an additional $27.3 million in gross federal and state NOLs. If not utilized, our federal NOL carryforwards will begin to expire in 2022, and our state NOL carryforwards will begin to expire in 2016. NOLs that we have generated are not currently subject to the carryforward limitation in Section 382 of the Internal Revenue Code (“Section 382 limitation”); however, $43.6 million of NOLs generated by our subsidiaries prior to our acquisition of them are subject to the Section 382 limitation. The limitation on these pre-acquisition NOL carryforwards will fully expire in 2035. A cumulative change in ownership among material shareholders, as defined in Section 382 of the Internal Revenue Code, during a three-year period may also limit utilization of our federal net operating loss carryforwards.
The following table sets forth cash flow data for the periods indicated therein:
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Net cash provided by operating activities
$
28,969

 
$
22,498

Net cash used in investing activities
(69,369
)
 
(6,182
)
Net cash provided by (used in) financing activities
66,892

 
(15,301
)
Net Cash Provided by Operating Activities
During the three months ended March 31, 2016, cash provided by operating activities consisted of net income of $3.0 million, net non-cash adjustments to net income of $22.4 million and a net inflow of cash from changes in working capital of $3.6 million. Non-cash adjustments primarily consisted of amortization and depreciation expense of $12.6 million, stock-based compensation of $8.4 million, and income tax-related items of $1.5 million. These items were partially offset by other adjustments totaling $0.1 million.
Changes in working capital included net cash inflows from accounts receivable, excluding receivables acquired from NWP, of $5.0 million. Additionally, an increase in other current and long-term liabilities resulted in cash inflows of $1.4 million. These cash inflows were reduced by a decrease in accounts payable and accrued liabilities of $1.2 million, and changes in deferred revenue of $1.6 million.
Net Cash Used in Investing Activities
For the three months ended March 31, 2016, we used $69.4 million of cash on investing activities. We used $59.2 million in our acquisition of NWP and $10.2 million on capital expenditures. Capital expenditures during the period primarily included expenditures to support our strategy of consolidating our real estate footprint, including preparation of our new corporate headquarters in Richardson, Texas, and consolidation of offices in Greer, South Carolina; capitalized software development costs; and expenditures to support our information technology infrastructure.

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Net Cash Provided by Used in Financing Activities
The net cash provided by our financing activities largely consisted of proceeds of $124.7 million from the Term Loan we entered into in February 2016. Concurrent with the receipt of the Term Loan, we repaid $40.0 million of then outstanding revolving loans. Other significant uses of cash during the period included purchases of $16.1 million under our stock repurchase program, payments of acquisition-related consideration of $2.4 million, and other expenditures totaling $0.5 million consisting of financing costs related to the Term Loan and payments under our capital lease obligations. Finally, activity under our stock-based compensation plans resulted in cash inflows of $1.2 million during the first quarter of 2016.
Contractual Obligations, Commitments and Contingencies
Contractual Obligations
Our contractual obligations relate primarily to borrowings and interest payments under credit facilities, capital leases, operating leases and purchase obligations. As further discussed below under Long-Term Debt Obligations, we entered into an amendment of our existing credit facility in February 2016. There have been no other material changes outside normal operations in our contractual obligations from our disclosures within our Form 10-K for the year ended December 31, 2015.
Long-Term Debt Obligations
On September 30, 2014, we entered into an agreement for a secured revolving credit facility (as amended by the Amendment discussed below, the "Credit Facility") to refinance our outstanding revolving loans. The Credit Facility provides an aggregate principal amount of up to $200.0 million, with sublimits of $10.0 million for the issuance of letters of credit and for $20.0 million of swingline loans. Revolving loans under the Credit Facility may be voluntarily prepaid and re-borrowed. At our option, the revolving loans accrue interest at a per annum rate equal to either LIBOR, plus a margin ranging from 1.25% to 1.75%, or the Base Rate, plus a margin ranging from 0.25% to 0.75%. The Credit Facility permits, at our discretion, the use of one, two, three or six month LIBOR. The Base Rate is defined as the greater of Wells Fargo’s prime rate, the Federal Funds Rate plus 0.50%, or one month LIBOR plus 1.00%. In each case the applicable margin is determined based upon our consolidated net leverage ratio. The interest is due and payable quarterly, in arrears, for loans bearing interest at the Base Rate and at the end of the applicable interest period in the case of loans bearing interest at the adjusted LIBOR rate. All outstanding principal and accrued and unpaid interest is due upon the Credit Facility's maturity on September 30, 2019.
In February 2016, the Company entered into an amendment (the "Amendment") of the Credit Facility. The Amendment provides for an incremental term loan in the amount of $125.0 million ("Term Loan") that is coterminous with the Credit Facility. Principal payments on the Term Loan are due in quarterly installments beginning in June 2016. Amounts paid under the Term Loan may not be re-borrowed. The Term Loan is subject to mandatory repayment requirements in the event of certain asset sales or insurance or condemnation events occur, subject to customary reinvestment provisions. The Company may prepay the Term Loan in whole or in part at any time, without premium or penalty, with prepayment amounts to be applied to remaining scheduled principal amortization payments as specified by the Company. The Term Loan is subject to the same interest rate terms and payments dates as the revolving loans. Under the terms of the Amendment, an additional margin tier was added such that the Applicable Margin now ranges from 1.25% to 2.00% for LIBOR loans, and from 0.25% to 1.00% for Base Rate loans.
The Credit Facility is secured by substantially all of our assets, and certain of our existing and future material domestic subsidiaries are required to guarantee our obligations under the Credit Facility. The Credit Facility contains customary covenants, subject in each case to customary exceptions and qualifications, which limit our and certain of our subsidiaries’ ability to, among other things, incur additional indebtedness or guarantee indebtedness of others; create liens on our assets; enter into mergers or consolidations; dispose of assets; prepay certain indebtedness or make changes to our governing documents and certain of our agreements; pay dividends and make other distributions on our capital stock and redeem and repurchase our capital stock; make investments, including acquisitions; and enter into transactions with affiliates. Additionally, the Credit Facility contains customary affirmative covenants. We are also required to comply with a maximum consolidated net leverage ratio and a minimum interest coverage ratio. The interest coverage ratio, which is a ratio of our four previous consecutive fiscal quarters' consolidated EBITDA, as defined in the agreement, to our interest expense, is not to be less than 3.00 to 1.00 as of the last day of any fiscal quarter. The consolidated net leverage ratio, which is the ratio of funded indebtedness on the last day of each fiscal quarter to the four previous consecutive fiscal quarters' consolidated EBITDA, is not to be greater than 3.50 to 1.00, provided that we can elect to increase the ratio to 3.75 to 1.00 for a specified period following a permitted acquisition. Pursuant to the Amendment, we can elect to increase the maximum consolidated net leverage ratio to 4.00 to 1.00 for a specified period following the issuance of convertible or high yield notes in an initial principal amount of at least $150.0 million.
The Credit Facility contains customary events of default, subject to customary cure periods for certain defaults, that include, among others, non-payment defaults, covenant defaults, material judgment defaults, bankruptcy and insolvency defaults, cross-defaults to certain other material indebtedness, defaults for non-compliance with the Employee Retirement Income Security Act ("ERISA"), inaccuracy of representations and warranties and a change in control default.

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In the event of a default, the obligations under the Credit Facility could be accelerated, the applicable interest rate under the Credit Facility could be increased, the loan commitments could be terminated, our subsidiaries that have guaranteed the Credit Facility could be required to pay the obligations in full and our lenders would be permitted to exercise remedies with respect to all of the collateral that is securing the Credit Facility, including substantially all of our and our subsidiary guarantors’ assets. Any such default that is not cured or waived could have a material adverse effect on our liquidity and financial condition.
As of March 31, 2016, we were in compliance with the covenants under the Credit Facility.
Share Repurchase Program
On May 6, 2014, our board of directors approved a share repurchase program authorizing the repurchase of up to $50.0 million of our outstanding common stock for a period of up to one year after the approval date. In May 2015, our board of directors approved an extension of the share repurchase program, permitting the repurchase of up to $50.0 million of our common stock during the period commencing on the extension date and ending on May 6, 2016.
During the three months ended March 31, 2016, the Company repurchased 777,669 shares at a weighted average cost of $20.75 per share and a total cost of $16.1 million. During the year ended December 31, 2015, we repurchased 1,798,199 shares at a weighted average price of $19.51 and a total cost of $35.1 million.
On April 26, 2016, our board of directors approved a one-year extension of the share repurchase program. The terms of the extension permit the repurchase of up to $50.0 million of our common stock during the period commencing on the extension day and ending on May 6, 2017.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements and we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue financial instruments for trading purposes.
We had cash and cash equivalents of $57.5 million and $30.9 million at March 31, 2016 and December 31, 2015, respectively.
We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments, as our investments consist primarily of highly liquid investments purchased with original maturities of three months or less.
We had $125.0 million outstanding under our Term Loan at March 31, 2016. At December 31, 2015, we had $40.0 million in revolving loans outstanding under the Credit Facility. There were no outstanding revolving loans at March 31, 2016. At our option, amounts borrowed under the Credit Facility accrue interest at a per annum rate equal to either LIBOR, plus a margin ranging from 1.25% to 2.00%, or the Base Rate, plus a margin ranging from 0.25% to 1.00%. The base LIBOR rate is, at our discretion, equal to either one, two, three or six month LIBOR. The Base Rate is defined as the greater of Wells Fargo's prime rate, the Federal Funds Rate plus 0.50%, or one month LIBOR plus 1.00%. If the applicable rates change by 10% of the March 31, 2016 closing market rates, our annual interest expense would change by less than $0.1 million.
On March 31, 2016, we entered into two interest rate swap agreements to eliminate variability in interest payments on the Term Loan. At March 31, 2016, $75.0 million of the Term Loan's principal was hedged under the interest rate swap agreements. The swap agreements replace the term note's variable rate with a blended fixed rate of 0.89%. We do not use derivative financial instruments for speculative or trading purposes; however, we may adopt additional specific hedging strategies in the future. Any declines in interest rates, however, will reduce future interest income.

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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, with the participation of our management, and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2016, in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s assessment of the effectiveness of our disclosure controls and procedures is expressed at the level of reasonable assurance because management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations of Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II—OTHER INFORMATION
 
Item 1. Legal Proceedings.
We are subject to legal proceedings and claims arising in the ordinary course of business. We are involved in litigation and other legal proceedings and claims that have not been fully resolved. At this time, we believe that any reasonably possible adverse outcome of these matters would not be material either individually or in the aggregate. Our view of those matters may change in the future as litigation and events related thereto unfold.
Item 1A. Risk Factors.
Risks Related to Our Business
Our quarterly operating results have fluctuated in the past and may fluctuate in the future, which could cause our stock price to decline.
Our quarterly operating results may fluctuate as a result of a variety of factors, many of which are outside of our control. Fluctuations in our quarterly operating results may be due to a number of factors, including the risks and uncertainties discussed elsewhere in this filing. Some of the important factors that could cause our revenues and operating results to fluctuate from quarter to quarter include:
the extent to which on demand software solutions maintain current and achieve broader market acceptance;
fluctuations in leasing activity by our clients;
increase in the number or severity of insurance claims on policies sold by us;
our ability to timely introduce enhancements to our existing solutions and new solutions;
our ability to renew the use of our on demand solutions