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

“Our revenue and profit results for the second quarter were below our expectations,” said Steve Winn, Chairman and CEO of RealPage. “Our revenue shortfall was primarily driven by less demand for our leasing and marketing solutions and lower than expected revenue from our renter’s insurance solutions. The shortfall in our leasing and marketing solutions was primarily attributed to a rental housing environment where we believe demand has significantly outpaced supply, driving resident renewal rates to some of the highest levels we have seen in five years.”

“Our subscription revenue excluding leasing and marketing solutions, which accounts for the majority of total revenue, grew nearly 14% during the second quarter compared to the prior year period,” Mr. Winn continued. “Our strategy will focus on creating incremental demand for all solutions through the addition of new features and functionality, pricing strategies, partnerships, continued investment in the sales force and our implementation infrastructure.”

Second Quarter 2014 Financial Highlights

  • Non-GAAP total revenue was $94.8 million, flat year-over-year, while GAAP total revenue was $95.0 million, an increase of 1% year-over-year;
  • Non-GAAP on demand revenue was $91.4 million, an increase of 1% year-over-year, while GAAP on demand revenue was $91.6 million, an increase of 1% year-over-year;
  • Adjusted EBITDA was $12.5 million, a decrease of 41% year-over-year;
  • Non-GAAP net income was $4.6 million, or $0.06 per diluted share, a year-over-year decrease of 56% and 57%, respectively; and
  • GAAP net loss was $6.3 million, or $0.08 per diluted share, compared to GAAP net income of $4.6 million, or $0.06 per diluted share, in the prior year quarter.

Financial Outlook

RealPage management expects to achieve the following results during its third quarter ended September 30, 2014:

  • Non-GAAP total revenue is expected to be in the range of $101.0 million to $103.0 million;
  • Adjusted EBITDA is expected to be in the range of $16.0 million to $17.0 million; and
  • Non-GAAP net income per diluted share is expected to be in the range of $0.08 to $0.09.

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

  • Non-GAAP total revenue is expected to be in the range of $400.0 million to $405.0 million;
  • Adjusted EBITDA is expected to be in the range of $70.0 million to $73.0 million; and
  • Non-GAAP net income per diluted share is expected to be in the range of $0.37 to $0.40.

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

Conference Call and Webcast

The Company will host a conference call on August 4, 2014 at 5 p.m. EDT to discuss its financial results. Participants are encouraged to listen to the presentation via a live Web broadcast on the Investor Relations section. In addition, a live dial-in is available domestically at 866-743-9666 and internationally at 760-298-5103. A replay will be available at 855-859-2056 or 404-537-3406, passcode 76947839, until August 10, 2014.

About RealPage

RealPage, Inc. is a leading provider of comprehensive property management software solutions for the multifamily, commercial, single-family and vacation rental housing industries. These solutions help property owners increase efficiency, decrease expenses, enhance the resident experience and generate more revenue. Using its innovative SaaS platform, RealPage's on-demand software enables easy system integration and streamlines online property management. Its product line covers the full spectrum of property management solutions, including leasing, accounting, revenue management, marketing solutions, resident services, renter insurance, utility management, spend management and apartment market research. Founded in 1998 and headquartered in Carrollton, Texas. RealPage currently serves over 10,000 clients worldwide from offices in North America, Europe and Asia. For more information about the company, visit http://www.realpage.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains "forward-looking" statements relating to RealPage, Inc.'s expected, possible or assumed future results and RealPage, Inc.’s strategic focus on creating incremental demand for all solutions through the addition of new features and functionality, pricing strategies, partnerships, continued investment in sales force and implementation infrastructure. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements that are not historical facts and may be identified by terms such as "expects," "believes," "plans," or similar expressions and the negatives of those terms. Those forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The Company may be required to revise its results upon finalizing its review of second quarter results, which could cause or contribute to such differences. Additional factors that could cause or contribute to such differences include, but are not limited to, the following: (a) the possibility that general economic conditions, including leasing velocity or uncertainty cause information technology spending, particularly in the rental housing industry, to be reduced or purchasing decisions to be delayed; (b) an increase in insurance claims; (c) an increase in customer cancellations; (d) the inability to increase sales to existing customers and to attract new customers; (e) RealPage, Inc.'s failure to integrate acquired businesses and any future acquisitions successfully; (f) the timing and success of new product introductions by RealPage, Inc. or its competitors; (g) changes in RealPage, Inc.'s pricing policies or those of its competitors; (h) litigation; (i) inability to complete the integration of our LeaseStar products and deliver enhanced functionality on a timely basis; (j) the ability to enable margin expansion; and (k) such other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by RealPage Inc., including its Quarterly Report on Form 10-Q previously filed with the SEC on May 12, 2014. All information provided in this release is as of the date hereof and RealPage Inc. undertakes no duty to update this information except as required by law.

Non-GAAP Financial Measures

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

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

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

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

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

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

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

       
Condensed Consolidated Balance Sheets
At June 30, 2014 and December 31, 2013
(unaudited, in thousands except share data)
 
June 30, December 31,
  2014     2013  
Assets
Current assets:
Cash and cash equivalents $ 39,217 $ 34,502
Restricted cash 46,927 71,941
Accounts receivable, less allowance for doubtful accounts of $2,137 and $914 at
June 30, 2014 and December 31, 2013, respectively 59,979 66,635
Deferred tax asset, net 6,836 3,284
Other current assets   8,308     7,453  
Total current assets 161,267 183,815
Property, equipment and software, net 66,515 54,775
Goodwill 197,658 152,422
Identified intangible assets, net 106,382 108,815
Other assets   4,167     3,386  
Total assets $ 535,989   $ 503,213  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 21,579 $ 11,978
Accrued expenses and other current liabilities 27,436 23,122
Current portion of deferred revenue 66,695 66,085
Customer deposits held in restricted accounts   46,895     71,910  
Total current liabilities 162,605 173,095
Deferred revenue 6,838 5,671
Deferred tax liability, net 1,081 1,379
Revolving credit facility 25,000 -
Other long-term liabilities   14,647     8,564  
Total liabilities 210,171 188,709
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized and zero shares
issued and outstanding at June 30, 2014 and December 31, 2013, respectively - -
Common stock, $0.001 par value per share: 125,000,000 shares authorized,
82,016,928 and 80,511,791 shares issued and 79,082,594 and 78,433,626 shares
outstanding at June 30, 2014 and December 31, 2013, respectively 82 81
Additional paid-in capital 415,127 390,854
Treasury stock, at cost: 2,934,334 and 2,078,165 shares at June 30, 2014 and
December 31, 2013, respectively (17,007 ) (11,183 )
Accumulated deficit (72,213 ) (65,086 )
Accumulated other comprehensive loss   (171 )   (162 )
Total stockholders' equity   325,818     314,504  
Total liabilities and stockholders' equity $ 535,989   $ 503,213  

           
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands except per share data)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Revenue:
On demand $ 91,606 $ 90,825 $ 188,614 $ 176,147
On premise 826 1,011 1,691 1,961
Professional and other   2,556     2,615     5,246     5,324  
Total revenue 94,988 94,451 195,551 183,432
Cost of revenue   42,115     37,340     82,042     72,704  
Gross profit 52,873 57,111 113,509 110,728
Operating expense:
Product development 15,941 11,727 30,782 23,765
Sales and marketing 28,030 23,924 54,021 46,826
General and administrative   16,819     12,819     37,748     29,326  
Total operating expense   60,790     48,470     122,551     99,917  
Operating income (loss) (7,917 ) 8,641 (9,042 ) 10,811
Interest expense and other income, net   (204 )   (596 )   (426 )   (685 )
Income (loss) before income taxes (8,121 ) 8,045 (9,468 ) 10,126
Income tax expense (benefit)   (1,830 )   3,435     (2,341 )   4,498  
Net income (loss) $ (6,291 ) $ 4,610   $ (7,127 ) $ 5,628  
 
Net income (loss) per share
Basic $ (0.08 ) $ 0.06 $ (0.09 ) $ 0.08
Diluted $ (0.08 ) $ 0.06 $ (0.09 ) $ 0.07
Weighted average shares used in
computing net income (loss) per share
Basic 77,283 74,541 77,004 74,278
Diluted 77,283 75,781 77,004 75,665

               
Condensed Consolidated Statements of Cash Flows
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Cash flows from operating activities:
Net income (loss) $ (6,291 ) $ 4,610 $ (7,127 ) $ 5,628
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,067 7,420 19,571 15,218
Deferred tax expense (benefit) (2,859 ) 2,361 (3,850 ) 3,046
Stock-based compensation 10,033 6,061 19,258 13,306
Loss on disposal of assets - 270 20 273
Acquisition-related contingent consideration (233 ) (1,193 ) (66 ) 1,445
Changes in assets and liabilities, net of assets acquired
and liabilities assumed in business combinations: 8,405 (2,151 ) 14,942 (4,333 )
       
Net cash provided by operating activities   19,122     17,378     42,748     34,583  
Cash flows from investing activities:
Purchases of property, equipment and software, net (11,873 ) (5,669 ) (19,135 ) (13,393 )
Acquisition of businesses, net of cash acquired

(34,874

) (146 )

(42,053

) (10,196 )
Intangible asset additions   -     -     -     (600 )
Net cash used by investing activities  

(46,747

)   (5,815 )  

(61,188

)   (24,189 )
Cash flows from financing activities:
Payments on and proceeds from debt, net

24,859

(137 )

24,720

(10,273 )
Payments of deferred acquisition-related consideration (28 ) (179 ) (748 ) (486 )
Issuance of common stock 3,741 1,469 5,016 2,993
Purchase of treasury stock   (3,831 )   (1,132 )   (5,824 )   (2,065 )
Net cash provided by (used in) financing activities  

24,741

    21    

23,164

    (9,831 )
Net increase (decrease) in cash and cash equivalents (2,884 ) 11,584 4,724 563
Effect of exchange rate on cash 5 (26 ) (9 ) (48 )
Cash and cash equivalents:
Beginning of period   42,096     22,761     34,502     33,804  
End of period $ 39,217   $ 34,319   $ 39,217   $ 34,319  

       
Reconciliation of GAAP to Non-GAAP Measures
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Non-GAAP revenue:
Revenue (GAAP) $ 94,988 $ 94,451 $ 195,551 $ 183,432

Acquisition-related and other deferred revenue

  (207 )   -     1,117     2  
Non-GAAP revenue $ 94,781   $ 94,451   $ 196,668   $ 183,434  
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Adjusted gross profit:
Gross profit (GAAP) $ 52,873 $ 57,111 $ 113,509 $ 110,728
Acquisition-related and other deferred revenue (207 ) - 1,117 2
Depreciation 2,013 1,444 3,871 3,287
Amortization of intangible assets 2,447 2,028 4,870 3,995
Stock-based compensation expense   866     676     1,873     1,426  
Adjusted gross profit $ 57,992   $ 61,259   $ 125,240   $ 119,438  
 
Adjusted gross profit margin 61.2 % 64.9 % 63.7 % 65.1 %
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Adjusted EBITDA:
Net income (loss) (GAAP) $ (6,291 ) $ 4,610 $ (7,127 ) $ 5,628
Acquisition-related and other deferred revenue (207 ) - 1,117 2
Depreciation, asset impairment and loss on disposal of asset 4,581 3,398 8,790 7,086
Amortization of intangible assets 5,486 4,292 10,801 8,405
Interest expense, net 207 606 431 963
Income tax expense (benefit) (1,830 ) 3,435 (2,341 ) 4,498
Litigation-related expense 168 (353 ) 4,845 53
Stock-based compensation expense 10,033 6,061 19,258 13,306
Acquisition related expense   357     (949 )   1,238     1,825  
Adjusted EBITDA $ 12,504   $ 21,100   $ 37,012   $ 41,766  
 
Adjusted EBITDA margin 13.2 % 22.3 % 18.8 % 22.8 %
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Non-GAAP total product development:
Product development (GAAP) $ 15,941 $ 11,727 $ 30,782 $ 23,765
Less: Amortization of intangible assets 1 1 3 1
Stock-based compensation expense   2,144     721     4,056     1,852  
Non-GAAP total product development: $ 13,796   $ 11,005   $ 26,723   $ 21,912  
 
Non-GAAP total product development as % of non-GAAP revenue: 14.6 % 11.7 % 13.6 % 11.9 %

       
Reconciliation of GAAP to Non-GAAP Measures
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Non-GAAP total sales and marketing:
Sales and marketing (GAAP) $ 28,030 $ 23,924 $ 54,021 $ 46,826
Less: Amortization of intangible assets 2,847 2,264 5,739 4,410
Stock-based compensation expense   3,101     2,004     6,244     5,205  
Non-GAAP total sales and marketing: $ 22,082   $ 19,656   $ 42,038   $ 37,211  
 
Non-GAAP total sales and marketing as % of non-GAAP revenue: 23.3 % 20.8 % 21.4 % 20.3 %
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Non-GAAP total general and administrative:
General and administrative (GAAP) $ 16,819 $ 12,819 $ 37,748 $ 29,326
Less: Amortization of intangible assets 192 - 192 -
Acquisition related expense 357 (949 ) 1,238 1,825
Stock-based compensation expense 3,922 2,660 7,085 4,823
Litigation related expense   168     (353 )   4,845     53  
Non-GAAP total general and administrative: $ 12,180   $ 11,461   $ 24,388   $ 22,625  
 
Non-GAAP total general and administrative as % of non-GAAP revenue: 12.9 % 12.1 % 12.4 % 12.3 %
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Non-GAAP total operating expense:
Operating expense (GAAP) $ 60,790 $ 48,470 $ 122,551 $ 99,917
Less: Amortization of intangible assets 3,040 2,264 5,934 4,410
Acquisition related expense

 

357 (949 ) 1,238 1,825
Stock-based compensation expense 9,167 5,385 17,385 11,880
Litigation related expense   168     (353 )   4,845     53  
Non-GAAP total operating expense: $ 48,058   $ 42,123   $ 93,149   $ 81,749  
 
Non-GAAP total operating expense as % of non-GAAP revenue: 50.7 % 44.6 % 47.4 % 44.6 %
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Non-GAAP operating income:
Operating income (loss) (GAAP) $ (7,917 ) $ 8,641 $ (9,042 ) $ 10,811
Acquisition-related and other deferred revenue (207 ) - 1,117 2
Amortization of intangible assets 5,486 4,292 10,801 8,405
Stock-based compensation expense 10,033 6,061 19,258 13,306
Acquisition related expense 357 (949 ) 1,238 1,825
Litigation related expense   168     (353 )   4,845     53  
Non-GAAP operating income $ 7,920   $ 17,692   $ 28,217   $ 34,402  
 
Non-GAAP operating margin 8.4 % 18.7 % 14.3 % 18.8 %

         
Reconciliation of GAAP to Non-GAAP Measures
For the Three and Six Months Ended June 30, 2014 and 2013
(unaudited, in thousands except per share data)
   
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Non-GAAP net income:
Net income (loss) (GAAP) $ (6,291 ) $ 4,610 $ (7,127 ) $ 5,628
Acquisition-related and other deferred revenue (207 ) - 1,117 2
Amortization of intangible assets 5,486 4,292 10,801 8,405
Stock-based compensation expense 10,033 6,061 19,258 13,306
Acquisition related expense 357 (949 ) 1,238 1,825
Litigation related expense 168 (353 ) 4,845 53
Loss on disposal of assets   -     270     20     273  
Subtotal of tax deductible items 15,837 9,321 37,279 23,864
 
Tax impact of tax deductible items(1) (6,335 ) (3,728 ) (14,912 ) (9,546 )
Tax expense resulting from applying effective tax rate(2)   1,418     217     1,446     448  
Non-GAAP net income $ 4,629 $ 10,420 $ 16,686 $ 20,394
 
Non-GAAP net income per share - diluted $ 0.06 $ 0.14 $ 0.21 $ 0.27
 
Weighted average shares - diluted 77,283 75,781 77,004 75,665
Weighted average effect of dilutive securities   912     -     1,016     -  
Non-GAAP weighted average shares - diluted 78,195 75,781 78,020 75,665
                       

(1)

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

(2)

 Represents adjusting to a normalized effective tax rate of 40%.
 
Three Months Ended Six Months Ended
June 30, June 30,
  2014     2013     2014     2013  
Annualized Non-GAAP on demand revenue per average on demand unit:
On demand revenue (GAAP) $ 91,606 $ 90,825 $ 188,614 $ 176,147
Acquisition-related and other deferred revenue   (207 )   -     1,117     2  
Non-GAAP on demand revenue $ 91,399 $ 90,825 $ 189,731 $ 176,149
 
Ending on demand units 9,371 8,616 9,371 8,616
Average on demand units 9,328 8,580 9,241 8,455
       
Annualized Non-GAAP on demand revenue per average on demand unit $ 39.19   $ 42.34   $ 41.06   $ 41.67  
 
Annual customer value of on demand revenue(1) $ 367,249 $ 364,801
                       

(1)

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