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 June 30, 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
  
July 22, 2016
Common Stock, $0.001 par value
  
80,265,176


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)
 
June 30, 2016
 
December 31, 2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
46,688

 
$
30,911

Restricted cash
76,335

 
85,461

Accounts receivable, less allowance for doubtful accounts of $2,962 and $2,318 at June 30, 2016 and December 31, 2015, respectively
80,209

 
74,192

Prepaid expenses
11,166

 
8,294

Other current assets
22,414

 
23,085

Total current assets
236,812

 
221,943

Property, equipment, and software, net
114,757

 
82,198

Goodwill
261,768

 
220,097

Identified intangible assets, net
91,624

 
81,280

Deferred tax assets, net
18,863

 
12,051

Other assets
5,870

 
5,632

Total assets
$
729,694

 
$
623,201

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
26,879

 
$
17,448

Accrued expenses and other current liabilities
42,911

 
28,294

Current portion of deferred revenue
83,288

 
84,200

Current portion of term loan, net
3,906

 

Client deposits held in restricted accounts
76,281

 
85,405

Total current liabilities
233,265

 
215,347

Deferred revenue
6,922

 
6,979

Revolving line of credit

 
40,000

Term loan, net
119,678

 

Other long-term liabilities
35,382

 
34,423

Total liabilities
395,247

 
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 June 30, 2016 and December 31, 2015, respectively

 

Common stock, $0.001 par value: 125,000,000 shares authorized, 84,783,938 and 82,919,033 shares issued and 80,339,457 and 78,793,670 shares outstanding at June 30, 2016 and December 31, 2015, respectively
85

 
83

Additional paid-in capital
492,509

 
471,668

Treasury stock, at cost: 4,444,481 and 4,125,363 shares at June 30, 2016 and December 31, 2015, respectively
(26,517
)
 
(24,338
)
Accumulated deficit
(130,831
)
 
(120,415
)
Accumulated other comprehensive loss
(799
)
 
(546
)
Total stockholders’ equity
334,447

 
326,452

Total liabilities and stockholders’ equity
$
729,694

 
$
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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
 
 
 
 
 
On demand
$
136,610

 
$
110,640

 
$
260,021


$
217,100

On premise
687

 
726

 
1,459


1,467

Professional and other
5,422

 
3,396

 
9,622


6,665

Total revenue
142,719

 
114,762

 
271,102

 
225,232

Cost of revenue
62,078

 
48,493

 
116,826

 
96,055

Gross profit
80,641

 
66,269

 
154,276

 
129,177

Operating expense:
 
 
 
 
 
 
 
Product development
18,878

 
18,084

 
36,150

 
36,061

Sales and marketing
35,129

 
30,887

 
67,328

 
60,000

General and administrative
21,932

 
20,037

 
40,278

 
38,373

Impairment of identified intangible assets

 

 

 
527

Total operating expense
75,939

 
69,008

 
143,756

 
134,961

Operating income (loss)
4,702

 
(2,739
)
 
10,520

 
(5,784
)
Interest expense and other, net
(1,074
)
 
(390
)
 
(1,782
)
 
(657
)
Income (loss) before income taxes
3,628

 
(3,129
)
 
8,738

 
(6,441
)
Income tax expense (benefit)
1,545

 
189

 
3,659

 
(1,515
)
Net income (loss)
$
2,083

 
$
(3,318
)

$
5,079


$
(4,926
)
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to common stockholders
 
 
 
 
 
 
 
Basic
$
0.03

 
$
(0.04
)
 
$
0.07

 
$
(0.06
)
Diluted
$
0.03

 
$
(0.04
)
 
$
0.07

 
$
(0.06
)
Weighted average shares used in computing net income (loss) per share attributable to common stockholders
 
 
 
 
 
 
 
Basic
76,363

 
76,799

 
76,509

 
76,877

Diluted
77,161

 
76,799

 
77,120

 
76,877

See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
2,083

 
$
(3,318
)
 
$
5,079

 
$
(4,926
)
Unrealized loss on interest rate swaps, net
(330
)
 

 
(409
)
 

Foreign currency translation adjustment, net
8

 
(72
)
 
104

 
(236
)
Comprehensive income (loss)
$
1,761

 
$
(3,390
)
 
$
4,774

 
$
(5,162
)
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
510

 
1

 
8,007

 

 

 

 

 
8,008

Issuance of restricted stock
2,368

 
2

 
(2
)
 

 

 

 

 

Treasury stock purchases, at cost

 

 

 

 

 
(1,332
)
 
(23,423
)
 
(23,423
)
Retirement of treasury shares
(1,013
)
 
(1
)
 
(5,748
)
 

 
(15,495
)
 
1,013

 
21,244

 

Stock-based compensation

 

 
19,006

 

 

 

 

 
19,006

Net tax benefit deficiency of stock-based compensation

 

 
(422
)
 

 

 

 

 
(422
)
Interest rate swap agreements

 

 

 
(409
)
 

 

 

 
(409
)
Foreign currency translation

 

 

 
104

 

 

 

 
104

Reclassification of realized losses on cash flow hedge to earnings, net of tax

 

 

 
52

 

 

 

 
52

Net income

 

 

 

 
5,079

 

 

 
5,079

Balance as of June 30, 2016
84,784

 
$
85

 
$
492,509

 
$
(799
)
 
$
(130,831
)
 
(4,444
)
 
$
(26,517
)
 
$
334,447

See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
5,079

 
$
(4,926
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
26,822

 
21,874

Deferred taxes
2,320

 
(1,654
)
Stock-based expense
19,128

 
21,997

Excess tax benefit from stock-based compensation

 
637

Impairment of identified intangible assets

 
527

Loss on disposal and impairment of other long-lived assets
85

 
2,276

Acquisition-related consideration
(251
)
 
493

Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
 
 
 
Accounts receivable
1,251

 
191

Prepaid expenses and other current assets
2,656

 
(171
)
Other assets
(108
)
 
181

Accounts payable
62

 
1,086

Accrued compensation, taxes, and benefits
1,828

 
4,874

Deferred revenue
(1,229
)
 
1,325

Other current and long-term liabilities
2,958

 
84

Net cash provided by operating activities
60,601

 
48,794

Cash flows from investing activities:
 
 
 
Purchases of property, equipment, and software
(38,486
)
 
(11,248
)
Proceeds from disposal of property, equipment, and software

 
305

Acquisition of businesses, net of cash acquired
(71,305
)
 
(45,450
)
Net cash used in investing activities
(109,791
)
 
(56,393
)
Cash flows from financing activities:
 
 
 
Proceeds from term loan
124,688

 

Payments on term loan
(781
)
 

Proceeds from revolving credit facility

 
44,000

Payments on revolving line of credit
(40,000
)
 
(14,000
)
Deferred financing costs
(392
)
 
(8
)
Payments on capital lease obligations
(426
)
 
(286
)
Payments of acquisition-related consideration
(2,736
)
 
(1,234
)
Issuance of common stock
8,008

 
1,469

Excess tax benefit from stock-based compensation

 
(637
)
Purchase of treasury stock related to stock-based compensation
(2,179
)
 
(3,937
)
Purchase of treasury stock under share repurchase program
(21,244
)
 
(15,146
)
Net cash provided by financing activities
64,938

 
10,221

Net increase in cash and cash equivalents
15,748

 
2,622

Effect of exchange rate on cash
29

 
(236
)
Cash and cash equivalents:
 
 
 
Beginning of period
30,911

 
26,936

End of period
$
46,688

 
$
29,322


See accompanying notes

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RealPage, Inc.
Condensed Consolidated Statements of Cash Flows, continued
(in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2016
 
2015
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
1,747

 
$
350

Cash paid for income taxes, net of refunds
$
1,200

 
$
482

Non-cash investing activities:
 
 
 
Accrued property, equipment, and software
$
8,927

 
$
1,407


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 and six months ended June 30, 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 $1.1 million and $1.2 million for the three and six months ended June 30, 2015, respectively. Additionally, the impairment of an indefinite-lived intangible asset in the amount of $0.5 million recognized in the first quarter of 2015 was reclassified from the line “General and administrative” to “Impairment of identified intangible assets” in the current period. These reclassifications did not result in a change in the periods’ 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 and six months ended June 30, 2016 and 2015 was earned in the United States. Net property, equipment, and software held consisted of $110.1 million and $77.4 million located in the United States, and $4.7 million and $4.8 million in our international subsidiaries at June 30, 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 June 30, 2016 and December 31, 2015.

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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 expense; 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.
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.

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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 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 or six months ended June 30, 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.

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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.
Other Current Assets
Other current assets consisted of the following at June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
December 31, 2015
 
 
(in thousands)
Lease-related receivables
 
$
16,198

 
$
20,683

Inventory
 
2,185

 
548

Indemnification asset
 
1,220

 

Other current assets
 
2,811

 
1,854

Total other current assets
 
$
22,414

 
$
23,085

Lease-related receivables consist primarily of incentives related to a lease executed in 2015 for our new corporate headquarters in Richardson, Texas. The indemnification asset arose from our acquisition of NWP Services Corporation, which was completed in the first quarter of 2016. See additional discussion of this asset in Note 3.
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 Financial Accounting Standards Board (“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.
In November 2015, the 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, 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 in the first quarter of 2016 and will prospectively apply the guidance to all arrangements entered into or materially modified after January 1, 2016.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in fiscal years beginning after December 15, 2018. The amendments in this ASU are to be applied through a cumulative-effect adjustment to retained earnings as of the first reporting period in which the ASU is effective. We have not yet selected a transition date and are currently evaluating the impact of adopting ASU 2016-13 on our financial statements.
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

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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 a term of more than 12 months. Consistent with current GAAP, the recognition, 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). ASU 2014-09, as amended by certain supplementary ASU’s released in 2016, 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.
In August 2015, the FASB issued ASU 2015-14, 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 reporting periods beginning after December 15, 2016. We have not yet selected a transition method or date and are currently evaluating the impact of the pending adoption of this ASU on our 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, which are amortized over their useful life on a straight-line basis, and client relationships, which are amortized over their useful

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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
eSupply Systems, LLC
In June 2016, we acquired substantially all of the assets of eSupply Systems, LLC (“eSupply”) and those of certain entities related to eSupply. eSupply is an e-procurement software and group purchasing service and will augment our existing Spend Management solutions.
We acquired eSupply for a purchase price of $7.0 million, consisting of a cash payment of $5.5 million at closing and deferred cash obligation of up to $1.6 million, payable over 18 months after the acquisition date. The deferred cash obligation is subject to adjustments specified in the merger agreement related to the sellers’ indemnification obligations. The fair value of the deferred cash obligation on the date of acquisition was $1.5 million. This acquisition was financed using proceeds from our term loan. Direct acquisition costs were immaterial.
The acquired identified intangible assets consist of developed technology and client relationships. These intangible assets were assigned estimated useful lives of three and ten years, respectively. We recognized goodwill in the amount of $3.2 million related to this acquisition, which is primarily comprised of anticipated synergies with our existing Spend Management solutions. Goodwill and the acquired identified intangible assets are deductible for tax purposes.
AssetEye, Inc.
In May 2016, we acquired all of the issued and outstanding stock of AssetEye, Inc. (“AssetEye”). AssetEye is a data aggregation, reporting, and collaboration platform for institutions holding multiple real estate asset classes. This solution provides asset and portfolio managers with a solution to evaluate performance, trends, and operations across a portfolio with transparency into property-level data. The acquisition of AssetEye expanded the Company’s on demand solutions to serve all asset classes, including commercial, hospitality, multifamily, single family, senior living and student housing.
We acquired AssetEye’s issued and outstanding stock for a purchase price of $4.9 million. The purchase price consisted of a cash payment of $3.6 million at closing, net of cash acquired of $0.8 million; deferred cash obligations of $1.0 million, payable over a period of 2 years following the date of acquisition; contingent cash payments of up to $1.0 million if certain revenue targets are achieved during the three-month period ended September 30, 2017; and additional cash payments of $0.2 million due to former shareholders of AssetEye which 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 fair value of the deferred and contingent cash obligations was $0.9 million and $0.2 million, respectively, at the date of acquisition. This acquisition was financed with proceeds from our term loan that was issued in February 2016. Direct acquisition costs were immaterial.
The acquired identified intangible assets comprise developed technology and client relationships having useful lives of five and ten years, respectively. We recognized goodwill in the amount of $3.2 million related to this acquisition, which is primarily comprised of anticipated synergies between the AssetEye solution and our existing complementary solutions as well as our sales and marketing infrastructure. Goodwill and identified intangible assets recognized in connection with this transaction are not deductible for tax purposes.
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

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proceeds from our term loan that was issued in February 2016. Acquisition costs associated with this transaction totaled $0.3 million and were expensed as incurred.
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 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.
Purchase Price Allocation
The estimated fair values of assets acquired and liabilities assumed presented below 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 respective acquisition date. The preliminary allocation of the purchase price is as follows:
 
NWP
 
AssetEye
 
eSupply
 
(in thousands)
Restricted cash
$
4,960

 
$

 
$

Accounts receivable
7,902

 
90

 
259

Property, equipment, and software
3,194

 

 

Intangible assets
16,349

 
2,685

 
3,585

Goodwill
35,292

 
3,154

 
3,216

Deferred tax assets, net
10,154

 

 

Other assets, net of other liabilities
3,065

 
8

 
71

Accounts payable and accrued liabilities
(6,589
)
 

 
(147
)
Client deposits held in restricted accounts
(5,294
)
 

 

Deferred revenue

 
(16
)
 
(29
)
Deferred tax liabilities, net

 
(1,010
)
 

Total purchase price
$
69,033

 
$
4,911

 
$
6,955

At June 30, 2016, deferred cash obligations related to acquisitions completed in 2016 totaled $9.6 million, and were carried net of a discount of $0.5 million. The aggregate fair value of contingent consideration obligations related to these acquisitions was $0.2 million at June 30, 2016.
No payments of deferred or contingent cash obligations related to acquisitions completed in 2016 were made during the three and six months ended June 30, 2016. During the six months ended June 30, 2016, we made payments totaling $3.2 million related to payments due to certain employees and former shareholders of the acquired businesses described above.

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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.

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Purchase Price Allocation
We 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 June 30, 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 these was $0.4 million and $0.8 million at June 30, 2016 and December 31, 2015, respectively. During the three and six months ended June 30, 2016, we recognized a net gain of $0.2 million and $0.4 million, respectively, related to changes in the fair value of these obligations. No gains or losses were recognized related to these obligations during the same periods of 2015.
No payments of deferred or contingent cash obligations related to acquisitions completed in 2015 were made during the three and six months ended June 30, 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 June 30, 2016 and December 31, 2015, deferred cash obligations related to acquisitions completed prior to 2015 totaled $4.5 million and $7.3 million, respectively. During the six months ended June 30, 2016 and 2015, we paid deferred cash obligations related to these acquisitions in the amount of $2.9 million and $0.6 million, respectively.
The aggregate fair value of contingent cash obligations related to acquisitions completed prior to 2015 was estimated to be zero at both June 30, 2016 and December 31, 2015. During the six months ended June 30, 2015, we paid contingent cash obligations totaling $0.7 million related to these acquisitions. No payments were made during the same period of 2016. Net losses of $0.1 million and $0.4 million were recognized during the three and six months ended June 30, 2015, respectively, related to the change in fair value of these contingent cash obligations. No gain or loss was recognized during the same periods of 2016.

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Pro Forma Results of Acquisitions
The following table presents pro forma results of operations for the three and six months ended June 30, 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 June 30,
 
Six Months Ended June 30,
 
2016
Pro Forma
 
2015
Pro Forma
 
2016
Pro Forma
 
2015
Pro Forma
 
(in thousands, except per share amounts)
Total revenue:
$
143,191

 
$
132,121

 
$
281,959

 
$
259,812

Net income (loss)
1,937

 
(4,213
)
 
4,509

 
(6,798
)
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.03

 
$
(0.05
)
 
$
0.06

 
$
(0.09
)
Diluted
$
0.03

 
$
(0.05
)
 
$
0.06

 
$
(0.09
)
4. Property, Equipment, and Software
Property, equipment, and software consisted of the following at June 30, 2016 and December 31, 2015:
 
June 30, 2016
 
December 31, 2015
 
 
 
Leasehold improvements
$
54,235

 
$
26,138

Data processing and communications equipment
72,905

 
67,871

Furniture, fixtures, and other equipment
22,927

 
18,253

Software
77,335

 
68,972

 
227,402

 
181,234

Less: Accumulated depreciation and amortization
(112,645
)
 
(99,036
)
Property, equipment, and software, net
$
114,757

 
$
82,198

Depreciation and amortization expense for property, equipment, and purchased software was $6.5 million and $5.2 million for the three months ended, and $11.9 million and $10.2 million for the six months ended June 30, 2016 and 2015, respectively. This includes amortization related to assets acquired through capital leases.
The carrying amount of capitalized software development costs was $47.5 million and $41.2 million at June 30, 2016 and December 31, 2015, respectively. Total accumulated amortization related to these assets was $16.5 million and $14.0 million at the respective dates. Amortization expense related to capitalized software development costs totaled $1.4 million and $0.8 million for the three months ended and $2.6 million and $1.5 million for the six months ended June 30, 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 six months ended June 30, 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 $0.2 million and $0.8 million during the three and six months ended June 30, 2015. 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 and six months ended June 30, 2016.
During the second quarter of 2015, we modified or terminated certain operating lease agreements for office space prior to the end of the applicable lease term. As a result of these changes, we recognized an impairment charge of $1.5 million related to leasehold improvements associated with a modified lease agreement. The impairment charge is included in the line “General and administrative” in the accompanying Condensed Consolidated Statements of Operations. During the three months ended June 30, 2015, we also disposed of fixed assets with a net carrying value of $0.3 million related to these offices by sale or other means.

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5. Goodwill and Identified Intangible Assets
Changes in the carrying amount of goodwill during the six months ended June 30, 2016 were as follows, in thousands:
Balance as of December 31, 2015
$
220,097

Goodwill acquired
41,662

Other
9

Balance as of June 30, 2016
$
261,768

Identified intangible assets consisted of the following at June 30, 2016 and December 31, 2015:
 
Weighted Average Amortization Period
(in years)
 
June 30, 2016
 
December 31, 2015
 
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
(in thousands)
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed technologies
3.2
 
$
75,931

 
$
(56,562
)
 
$
19,369

 
$
69,379

 
$
(50,509
)
 
$
18,870

Client relationships
9.4
 
111,853

 
(60,240
)
 
51,613

 
96,523

 
(54,267
)
 
42,256

Trade names
6.2
 
5,899

 
(726
)
 
5,173

 
5,149

 
(456
)
 
4,693

Total finite-lived intangible assets
6.9
 
193,683

 
(117,528
)
 
76,155

 
171,051

 
(105,232
)
 
65,819

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
15,469

 

 
15,469

 
15,461

 

 
15,461

Total identified intangible assets
 
 
$
209,152

 
$
(117,528
)
 
$
91,624

 
$
186,512

 
$
(105,232
)
 
$
81,280

Amortization expense related to finite-lived intangible assets was $6.3 million and $5.3 million for the three months ended, and $12.3 million and $10.2 million for the six months ended June 30, 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, 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 of revolving loans, with sublimits of $10.0 million for the issuance of letters of credit and $20.0 million for 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 (reduced to $25.0 million after the Amendment discussed below), 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 EBITDA, as defined in the agreement, to exceed 3.25 to 1.00. In February 2016, we entered into an amendment to the Credit Facility (the “Amendment”). The Amendment provides for an incremental term loan in the amount of $125.0 million (“Term Loan”) that is coterminous with the existing Credit Facility. The Amendment 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. We incurred debt issuance costs in the amount of $0.7 million in conjunction with the execution of the Amendment.
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

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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.
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 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 are due upon the Credit Facility’s maturity on September 30, 2019.
We had $124.2 million outstanding under our Term Loan at June 30, 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 June 30, 2016. As of June 30, 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 $1.5 million and $1.0 million at June 30, 2016 and December 31, 2015, respectively. At June 30, 2016, the Term Loan was carried net of unamortized debt issuance costs of $0.6 million in the accompanying Condensed Consolidated Balance Sheets. As of June 30, 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, in thousands:
2016
$
1,563

2017
5,469

2018
6,250

2019
110,938

 
$
124,220

7. Stock-based Expense
During the three and six months ended June 30, 2016, the Company made the following grants of restricted stock:
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
 
Condition to Become Eligible to Vest
306,055

 
1,565,127

 
Shares vest ratably over a period of twelve quarters beginning on the first day of the second calendar quarter immediately following the grant date.
55,783

 
55,783

 
Shares vest ratably over a period of four quarters beginning on the first day of the calendar quarter immediately following the grant date.
During the six months ended June 30, 2016, we granted 729,300 shares of restricted stock which require the achievement of certain market-based conditions to become eligible to vest. The shares become eligible to vest based on the achievement of the following conditions:
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 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. These awards 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.

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During the second quarter of 2016, we issued 21,400 shares of restricted stock to certain non-employees as payment for consulting services to be provided over the subsequent four quarterly periods. The shares vest as the consulting services are performed.
All stock options and restricted stock awards granted during 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 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 Condensed 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 2020. 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, including leases assumed in business combinations, were as follows at June 30, 2016:
 
Minimum Lease Payments
 
Minimum Rentals to be Received Under Subleases
 
Net Lease Payments
 
(in thousands)
2016
$
6,255

 
$
167

 
$
6,088

2017
12,132

 
140

 
11,992

2018
12,056

 

 
12,056

2019
10,238

 

 
10,238

2020
7,826

 

 
7,826

Thereafter
55,731

 

 
55,731

 
$
104,238

 
$
307

 
$
103,931

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 June 30, 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 June 30, 2016 or December 31, 2015.

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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. The claims in this purported class action relate to alleged violations of the Fair Credit Reporting Act (“FCRA”) in connection with background screens of prospective tenants of our clients. On January 25, 2016, the court entered an order placing the case on hold until the United States Supreme Court issued its decision in Spokeo, Inc. v. Robins, which case addressed issues related to standing to bring claims related to the FCRA. On May 16, 2016, the U.S. Supreme Court issued its opinion in the Spokeo litigation, vacating the decision of the United States Court of Appeals for the Ninth Circuit, and remanding the case for further consideration by the U.S. Court of Appeals. Following the Supreme Court’s decision in Spokeo, the judge in the Stokes case lifted the stay. On June 24, 2016, we filed a motion to dismiss certain claims made in the case based upon the Spokeo decision. The motion to dismiss is pending before the U.S. District Court. We intend to defend this case vigorously.
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. The claims in this purported class action relate to alleged violations of the FCRA in connection with background screens of prospective tenants of our clients. 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 on hold until the United States Supreme Court issued its decision in the Spokeo case. Following the Supreme Court’s decision in Spokeo, the judge in the Jenkins case lifted the stay. On June 24, 2016, we filed a motion to dismiss certain claims made in the case based upon the Spokeo decision. The motion to dismiss is pending before the U.S. District Court. We intend to defend this case vigorously.
On February 23, 2015, we received from the Federal Trade Commission (“FTC”) a Civil Investigative Demand consisting of interrogatories and a request to produce documents relating to our compliance with the FCRA. We have responded to the request and requests for additional information by the FTC. At this time, 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 June 30, 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 962,383 and 667,244 for the three months ended, and 1,217,714 and 1,106,796 for the six months ended June 30, 2016 and 2015, respectively, were excluded from the dilutive shares outstanding because their effect was anti-dilutive.

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The following table presents the calculation of basic and diluted net income (loss) per share:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except per share amounts)
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
2,083

 
$
(3,318
)
 
$
5,079

 
$
(4,926
)
Denominator:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Weighted average common shares used in computing basic net income (loss) per share
76,363

 
76,799


76,509


76,877

Diluted:
 
 
 
 
 
 
 
Add weighted average effect of dilutive securities:
 
 
 
 
 
 
 
   Stock options and restricted stock
798

 

 
611

 

Weighted average common shares used in computing diluted net income (loss) per share
77,161

 
76,799


77,120


76,877

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.03

 
$
(0.04
)
 
$
0.07

 
$
(0.06
)
Diluted
$
0.03

 
$
(0.04
)
 
$
0.07

 
$
(0.06
)
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 41.9% and 23.5% for the six months ended June 30, 2016 and 2015, respectively. Our effective rate is higher than the statutory rate for the six months ended June 30, 2016, primarily because of state income taxes and non-deductible expenses. The effective rate is lower than the statutory rate for the six months ended June 30, 2015, primarily because non-deductible expenses reduced the tax benefit associated with the pretax loss.
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.

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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 June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
December 31, 2015
Discount rates
 
14.5% - 27.0%
 
15.8% - 60.0%
Volatility rates
 
36.0%
 
37.0% - 53.5%
Risk free rate of return
 
0.5%
 
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.
The following table discloses the liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:
 
Fair value at June 30, 2016
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Contingent consideration related to the acquisition of:
 
 
 
 
 
 
 
Indatus
$
414

 
$

 
$

 
$
414

AssetEye
245

 

 

 
245

Interest rate swap agreements
542

 

 
542

 

 
$
1,201

 
$

 
$
542

 
$
659

 
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


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There were no assets measured at fair value on a recurring basis at June 30, 2016 or December 31, 2015.
The following table summarizes the changes in the fair value of our Level 3 liabilities for the six months ended June 30, 2016 and 2015:
 
Six Months Ended June 30,
 
2016
 
2015
 
(in thousands)
Balance at beginning of period
$
841

 
$
4,150

Initial contingent consideration
245

 
1,659

Settlements through cash payments

 
(687
)
Net (gain) loss on change in fair value
(427
)
 
410

Balance at end of period
$
659

 
$
5,532

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.
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 June 30, 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. Shares repurchased under the plan are retired. 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. 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.
Repurchase activity during the three and six months ended June 30, 2016 and 2015 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Number of shares repurchased
235,154

 
369,861

 
1,012,823

 
771,304

Weighted-average cost per share
$
21.71

 
$
19.46

 
$
20.98

 
$
19.64

Total cost of shares repurchased, in thousands
$
5,106

 
$
7,199

 
$
21,244

 
$
15,146

13. Derivative Financial Instruments
On March 31, 2016, the Company entered into two interest rate swap agreements (“Swap Agreements”), which are designed to mitigate our 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 Agreements as cash flow hedges of interest rate risk.
The effective portion of changes in the fair value of Swap Agreements is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in the fair value of the Swap Agreements is recognized directly in earnings. During the three and six months ended June 30, 2016, we did not incur any hedge ineffectiveness.

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Amounts reported in accumulated other comprehensive income (loss) related to the Swap Agreements will be reclassified to interest expense as interest payments are made on our variable-rate debt. The Company estimates that an additional $0.3 million will be reclassified as an increase to interest expense during the twelve-month period ending June 30, 2017.
As of June 30, 2016, the Swap Agreements are still outstanding. The table below presents the notional and fair value of the Swap Agreements as well as their classification on the Condensed Consolidated Balance Sheet as of June 30, 2016:
Derivatives designated as cash flow hedging instruments:
Balance Sheet Location
 
Notional
(in thousands)
 
Fair Value
(in thousands)
Swap Agreements
Other long-term liabilities
 
$
75,000

 
$
(542
)
As of June 30, 2016, the Company has not posted any collateral related to the Swap Agreements. If the Company had breached any of the Swap Agreement’s default provisions at June 30, 2016, it could have been required to settle its obligations under the Swap Agreements at their termination value of $0.6 million.
The table below presents the amount of gains and/or losses related to the effective and ineffective portions of the Swap Agreements and their location on the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2016:
 
 
Effective Portion
 
Ineffective Portion
Derivatives Designated as Cash Flow Hedges
 
Loss Recognized in OCI
 
Location of Loss Reclassified from AOCI into Income
 
Loss Reclassified from AOCI into Income
 
Location of Gain Recognized in Income
 
Loss Recognized in Income
 
 
(in thousands)
Three months ended:
 
 
 
 
 
 
 
 
 
 
Swap Agreements
 
$
(550
)
 
Interest expense and other
 
$
(86
)
 
Interest expense and other
 
$

Six months ended:
 
 
 
 
 
 
 
 
 
 
Swap Agreements
 
$
(629
)
 
Interest expense and other
 
$
(86
)
 
Interest expense and other
 
$

14. Comprehensive Income
Changes in accumulated balances of other comprehensive income, by component, were as follows for the three and six months ended June 30, 2016 and 2015, respectively. Amounts are shown net of income tax.
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
 
Foreign Currency
 
Swap Agreements
 
Total
 
Foreign Currency
 
Swap Agreements
 
Total
 
(in thousands)
Balance, beginning of period
$
(450
)
 
$
(79
)
 
$
(529
)
 
$
(546
)
 
$

 
$
(546
)
Interest rate swap:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of realized losses on Swap Agreement

 
52

 
52

 

 
52

 
52

Change in fair value of Swap Agreements

 
(330
)
 
(330
)
 

 
(409
)
 
(409
)
Foreign currency translation adjustments
8

 

 
8

 
104

 

 
104

Balance, end of period
$
(442
)
 
$
(357
)
 
$
(799
)
 
$
(442
)
 
$
(357
)
 
$
(799
)
 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
Foreign Currency
 
Hedge Instruments
 
Total
 
Foreign Currency
 
Hedge Instruments
 
Total
 
(in thousands)
Balance, beginning of period
$
(373
)
 
$

 
$
(373
)
 
$
(209
)
 
$

 
$
(209
)
Foreign currency translation adjustments
(72
)
 

 
(72
)
 
(236
)
 

 
(236
)
Balance, end of period
$
(445
)
 
$

 
$
(445
)
 
$
(445
)
 
$

 
$
(445
)
Amounts reclassified to net income during the three and six months ended June 30, 2016 included net realized losses on the Swap Agreements. These reclassifications are reflected in the line, “Interest expense and other, net” in the accompanying Condensed Consolidated Statements of Operations. No amounts were reclassified to net income during the three and six months ended June 30, 2015.

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Table of Contents

The following table shows the income tax effects of the individual items of other comprehensive income (loss) for the periods indicated, in thousands:
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
 
Before Tax Amount
 
Tax Expense (Benefit)
 
Net of Tax Amount
 
Before Tax Amount
 
Tax Expense (Benefit)
 
Net of Tax Amount
 
(in thousands)
Foreign currency translation adjustments
$
13

 
$
5

 
$
8

 
$
173

 
$
69

 
$
104

Unrealized loss on interest rate swap agreements
(550
)
 
(220
)
 
(330
)
 
(629
)
 
(220
)
 
(409
)
Net income for period
3,628

 
1,545

 
2,083

 
8,738

 
3,659

 
5,079

Other comprehensive income
$
3,091

 
$
1,330

 
$
1,761

 
$
8,282

 
$
3,508

 
$
4,774

 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
Before Tax Amount
 
Tax Expense (Benefit)
 
Net of Tax Amount
 
Before Tax Amount
 
Tax Expense (Benefit)
 
Net of Tax Amount
 
(in thousands)
Foreign currency translation adjustments
$
(72
)
 
$

 
$
(72
)
 
$
(236
)
 
$

 
$
(236
)
Net loss for period
(3,129
)
 
189

 
(3,318
)
 
(6,441
)
 
(1,515
)
 
(4,926
)
Other comprehensive loss
$
(3,201
)
 
$
189

 
$
(3,390
)
 
$
(6,677
)
 
$
(1,515
)
 
$
(5,162
)
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 $0.8 million and $0.7 million as of June 30, 2016 and December 31, 2015, respectively, and are included in the line, “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets.

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Table of Contents

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 June 30, 2016, over 12,200 clients used one or more of our on demand software solutions to help manage the operations of approximately 11.1 million multifamily, single family, or vacation rental units. Our clients include each of the ten 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 35 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 June 30, 2016, we had approximately 4,700 employees.

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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 six primary solutions: OneSite, Propertyware, Kigo, Spend Management Solutions, Enterprise Accounting, and The RealPage Cloud.
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, 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.

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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
eSupply Systems, LLC
In June 2016, we acquired substantially all of the assets of eSupply Systems, LLC (“eSupply”) and those of certain entities related to eSupply. eSupply is an e-procurement software and group purchasing service and will augment our existing spend management solutions. The addition of this group purchasing organization will provide increased purchasing power and highly competitive pricing structures for our clients. The addition of eSupply’s assets rounds out the Company’s spend management offering, by adding a powerful group purchasing service to an already robust e-procurement platform, a large network of vendors, a vendor credentialing service, and purchasing advisory services.
We acquired eSupply for a purchase price of $7.0 million, consisting of a cash payment of $5.5 million at closing and deferred cash obligations of up to $1.6 million, payable over 18 months after the acquisition date. The deferred cash obligation is subject to adjustments specified in the purchase agreement related to the sellers’ indemnification obligations.
AssetEye, Inc.
In May 2016, we acquired all of the issued and outstanding stock of AssetEye, Inc. (“AssetEye”). AssetEye is a data aggregation, reporting, and collaboration platform for institutions holding multiple real estate asset classes. This acquisition expanded our on demand offerings to serve all asset classes, including commercial, hospitality, multifamily, single family, senior living, and student housing. The AssetEye software provides asset and portfolio managers with a solution to evaluate performance, trends, and operations across a portfolio with transparency into property-level data. On demand analytics allow stakeholders to quickly combine financial results and operating metrics based upon portfolio attributes that help evaluate asset management strategies.
We acquired AssetEye’s issued and outstanding stock for a purchase price of $4.9 million. The purchase price consisted of a cash payment of $4.4 million at closing, net of cash acquired of $0.8 million; deferred cash obligations of up to $1.0 million, payable over a period of two years following the date of acquisition; contingent cash payments of up to $1.0 million if certain revenue targets are achieved during the three-month period ended September 30, 2017; and additional cash payments of $0.2 million due to former shareholders of AssetEye and which are expected to be remitted over a short-term period.
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.

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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 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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except dollar per unit data)
Revenue:
 
 
 
 
 
 
 
Total revenue
$
142,719

 
$
114,762

 
$
271,102

 
$
225,232

On demand revenue
$
136,610

 
$
110,640

 
$
260,021

 
$
217,100

On demand revenue as a percentage of total revenue
95.7
%
 
96.4
%
 
96.0
%
 
96.4
%
Ending on demand units
11,141

 
10,302

 
11,141

 
10,302

Average on demand units
11,070

 
10,001

 
10,927

 
9,816

Non-GAAP total revenue
$
142,461

 
$
114,230

 
$
270,501

 
$
224,234

Non-GAAP on demand revenue
$
136,352

 
$
110,108

 
$
259,420

 
$
216,102

Non-GAAP on demand revenue per average on demand unit
$
49.27

 
$
44.04

 
$
47.48

 
$
44.03

Non-GAAP on demand annual client value
$
548,917

 
$
453,700

 
 
 
 
Adjusted EBITDA
$
30,662

 
$
21,409

 
$
58,114

 
$
41,469

Adjusted EBITDA Margin
21.5
%
 
18.7
%
 
21.5
%
 
18.5
%
On demand revenue: This metric represents the GAAP revenue derived from 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.

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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 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.
Average on demand units: We calculate average on demand units as the average of the beginning and ending on demand units for each quarter in the period presented. This metric is a measure of our success increasing the number of on demand software solutions utilized by our clients to manage their rental housing units, our overall revenue, and profitability.
Non-GAAP total revenue: This metric is calculated by adding acquisition-related and other deferred revenue adjustments to total revenue. We believe 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. Further, we believe this measure is useful to investors as a way to evaluate the company’s ongoing performance.
The following provides a reconciliation of GAAP to non-GAAP total revenue:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Total revenue
$
142,719

 
$
114,762

 
$
271,102

 
$
225,232

Acquisition-related and other deferred revenue adjustments
(258
)
 
(532
)
 
(601
)
 
(998
)
Non-GAAP total revenue
$
142,461

 
$
114,230

 
$
270,501

 
$
224,234

Non-GAAP on demand revenue: This metric reflects total revenue plus acquisition-related and other deferred revenue adjustments, as defined below. We believe inclusion of these items provides a useful measure of the underlying performance of our business operations in the period of activity and associated expense. Further, we believe that investors and financial analysts find this measure to be useful in evaluating the Company’s ongoing performance because it provides a more accurate depiction of on demand revenue.
The following provides a reconciliation of GAAP to non-GAAP on demand revenue: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
On demand revenue
$
136,610

 
$
110,640

 
$
260,021

 
$
217,100

Acquisition-related and other deferred revenue adjustments
(258
)
 
(532
)
 
(601
)
 
(998
)
Non-GAAP on demand revenue
$
136,352

 
$
110,108

 
$
259,420

 
$
216,102

Non-GAAP on demand revenue per average on demand unit (“RPU”): This metric is calculated by dividing non-GAAP on demand revenue, including pro forma on demand revenue for acquisitions acquired during the period, by average on demand units for the same period. For interim periods, the calculation is performed on an annualized basis.
Non-GAAP on demand annual client value (“ACV”): We define ACV as RPU multiplied by ending on demand units. We monitor this metric to measure our success increasing the number of on demand units and the amount of software solutions utilized by our clients to manage their rental housing units. In addition, we believe ACV provides a useful proxy for the annual run-rate value of on demand client relationships.
Adjusted EBITDA: We define Adjusted EBITDA as net income (loss), plus (1) acquisition-related and other deferred revenue adjustments, (2) depreciation, asset impairment, and the loss on disposal of assets, (3) amortization of intangible assets,

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(4) acquisition-related (income) expense, (5) interest expense, net, (6) income tax expense (benefit), (7) litigation-related expense, (8) headquarters relocation costs, and (9) stock-based expense. We believe that investors and financial analysts find this non-GAAP financial measure to be useful in analyzing the Company’s financial and operational performance, comparing this performance to the Company’s peers and competitors, and understanding the Company’s ability to generate income from ongoing business operations.
The following provides a reconciliation of net income (loss) to Adjusted EBITDA:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Net income (loss)
$
2,083

 
$
(3,318
)
 
$
5,079

 
$
(4,926
)
Acquisition-related and other deferred revenue adjustments
(258
)
 
(532
)
 
(601
)
 
(998
)
Depreciation, asset impairment, and loss on disposal of assets
6,563

 
6,868

 
12,059

 
13,018

Amortization of intangible assets
7,737

 
6,079

 
14,848

 
11,659

Acquisition-related (income) expense
(9
)
 
565

 
(66
)
 
1,657

Interest expense
1,090

 
308

 
1,809

 
575

Income tax expense (benefit)
1,545

 
189

 
3,659

 
(1,515
)
Litigation-related expense

 

 

 
2

Headquarters relocation costs
1,174

 

 
2,199

 

Stock-based expense
10,737

 
11,250

 
19,128

 
21,997

Adjusted EBITDA
$
30,662

 
$
21,409

 
$
58,114

 
$
41,469

Adjusted EBITDA Margin: Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Non-GAAP total revenue. We believe that investors and financial analysts find this non-GAAP financial measure to be useful in analyzing our financial and operational performance, comparing this performance to our peers and competitors, and understanding our ability to generate income from ongoing business operations.
Non-GAAP Financial Measures
We report our financial results in accordance with GAAP; however, we believe that, in order to properly understand the company’s short-term and long-term financial, operational and strategic trends, it may be helpful for investors to exclude certain non-cash or non-recurring items when used as a supplement to financial performance measures in accordance with GAAP. These non-cash or non-recurring items result from facts and circumstances that vary in both frequency and impact on continuing operations. We also use results of operations excluding such items to evaluate our operating performance and compare it against prior periods, make operating decisions, determine executive compensation, and serve as a basis for long-term strategic planning. These non-GAAP financial measures provide us with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that we believe might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, reduce our ability to make useful forecasts, or obscure the ability to evaluate the effectiveness of certain business strategies, and management incentive structures. In addition, we also believe that investors and financial analysts find this information to be helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors. These non-GAAP financial measures are used in conjunction with traditional GAAP fina