Q3 2019 Earnings Call
Greetings and welcome to the real page third quarter 2019 conference call.
At this time, all participants Arnie listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Rhett Butler, Vice President Investor Relations. Please go ahead Sir.
Good afternoon, and welcome to the real page financial results Conference call for the third quarter ended September Thirtyth 2019, with me on the call today or Steve when our chairman and Chief Executive Officer, Tom aren't our Chief Financial Officer, and Treasurer in our remarks today. We will include statements that are considered forward looking.
Within the meaning of federal security laws. In addition management may make additional forward looking statements in response to your question.
Forward looking statements are based on management's current knowledge and expectation as of today November six 2019.
And are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward looking statements.
Detailed discussion of such risks and uncertainties is contained in our annual report on Form 10-K previously filed with the FCC on February 27th 2019, and as amended on November 15, 2019, and our quarterly report on Form 10-Q previously filed with the FCC.
On August nine 2019, and actually amended on November 15, 2019, as well as our earnings release and material distributed today Realpage undertakes no obligation to update any forward looking statements, except as required by law.
Finally, please note that on today's call, we may use or discuss non-GAAP financial measures as defined by regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed at a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure are included in today.
<unk> earnings press release. In addition, please reference the explanation of non-GAAP financial measures section of todays earnings press release for more information with that I'll hand, the call over to Steve.
[laughter] ex <unk> welcome everyone and thank you for joining us.
Today, we announced we have entered into an agreement to acquire building one of the largest and most successful property management software as a service platform selling into the SMB rental housing market.
This is the largest acquisition in our history intended to help us accelerate organic revenue growth in the large underpenetrated SMB market.
I'll discuss the significance of this acquisition review third quarter results and provide an update on innovations on initiatives to make real page and easier company to do business with in the call.
During the third quarter total revenue was $255 million, reflecting growth of 13% compared to the prior year.
Adjusted EBITDA grew nearly 22% to 72 million.
This was a strong quarter for real page and I'm pleased that we exceeded the high end of our red revenue guidance, coupled with strong cash flow that will support future growth and M&A activity.
We announced today an agreement to acquire building them subject to Hart, Scott Rodino approval and other standard closing conditions.
Liam is the most innovative easy to deploy property management platform in the SMB rental housing market.
Representing multifamily owners and operators with less than 5000 units.
Single family.
So she Asians richer ways and vacation rental owners and operators.
Building them currently supports approximately 2 million units in the SMB space.
Building on its customers love the product and the company's revenue growth is strong and accelerating we see an opportunity to significantly increase building them revenue per unit through deeper adoption of value added services and continue to grow the SMB units.
Given the Underpenetration, we see in the market.
Today building them offers basic screening payments on renters insurance to its property management clients.
One of our immediate priorities will be to expand these basic offerings with more complete and powerful real page value added capabilities, which we believe or highly differentiated from other competitors in the SMB space.
For example, we expect to integrate our simple bills utility billing solution into building them by the end of the year.
Several bills pays all utility bills for the owner eliminating any late fees recovers utility fees before a tenant moves out eliminate utility carrying cost and provides a much better resident experience.
One of our larger single family clients estimates that they are carrying nearly $12 million in unpaid utility bills are offering eliminated this cost for them.
We are achieving solid early adoption of simple bills within our property, where install base and expect that building them clients will embrace this new innovation from real page in a big way.
Building them also fulfills upon us we made to the H. away market segment, when we acquired click pay which serves approximately 2 million h. away units.
Building them gives us a comprehensive platform design for rate your way operators and we intend to aggressively expand building them coupled with click pay in the eight your way space.
The building them acquisition also advances our data strategy our repository of resident data is unrivaled in the industry. We have been archiving transaction details throughout the renter lifecycle across many areas of real estate for the better part of the last two decades.
Approximately 2 million units on their platform, we expect that building them will add significant depth to our competitive advantage and data.
Let's step not only extends to lease transaction data emanating from over 50000 leases per month, but also from a diverse mix of real estate classes, we see many developing opportunities to leverage our data strategy in the SMB space.
Including more robust revenue management and better monetization of services that residents need and buy through our resident portal.
What's sealed the deal with building them was our shared vision for the opportunity in the SMB space and our common customer focused culture. As we came together to discuss the potential for a combination over the last several months. We quickly identified that we had similar views on the changing demands for mix.
Use platform.
In the future and how we could help each other realize that vision.
We both believe and then open the strategy with open.
Enabling industry innovation to incubate on top of our platform. This is in a stark contrast to our larger competitors in the SMB space. We've elected to offer close platforms that stifle information innovation and result in higher prices to clients because their choices for ad.
On services are limited to only those offered by the platform provider.
In our view close solutions, our thing of the past and we're pleased that real page is the only major open platform provider that gives our SMB clients choice.
Finally, as we spent time with the building AMN team we are both.
We were both insistent on a cultural commitment to building a great company.
We articulate this on the real page promise a commitment to stress service to our clients above all other priorities.
The team at building them and property where share. These properties these priorities and that gives us confidence in our partnership.
Needless to say I'm extremely excited about the building them acquisition their management team and the collective opportunities only some of which I've outlined.
We believe are within our grasp.
We highlighted last quarter. The 2020 represented a significant wave.
Innovation, our 2019 represents a significant wave of innovation for real page.
In the third quarter, we launched a number of leasing and marketing marketing innovations that include contact center Threed auto enhanced digital marketing that flexes dynamically based on triggers received from Yieldstar and LR ROE and most important e-commerce , enabling our resident.
Portal called active building.
We demonstrated these innovations that are Realpage user conference in July and have received very strong positive reviews from early adopters of these solutions.
For example.
Douglas Elliman, a large and very well established property management company in New York prides itself on putting the resident experience at the forefront of service delivery. Therefore, they naturally chose technology solutions that reflect their commitment to providing a best in class customer experience.
And we're thrilled to be an earlier early adopter of Realpages, new leasing and marketing innovations and have been especially impressed with a seamless ways. They integrate with each other and with Douglas elements long established third party system of record.
The innovations in Realpages leasing and marketing suite are key to enabling us to accelerate organic revenue growth in this product family.
While we're pleased with the early feedback we're receiving we think it will take longer than originally projected for clients to adopt these new solutions.
And we've reduced our assumptions around speed to revenue of these products in the short term, which is reflected in our revised outlook, which Tom will describe in the call.
In addition, we've experienced some pressure in our resident utility management business, where we had higher expectations for revenue growth.
As you know we made several acquisitions in this area and generally are very pleased with the results.
We are in the second phase of integrating these platforms consolidating invoice and payment processing into a single unified platform, which will reduce our costs and improve customer experience.
However, with changes come customer anxiety that caused us not to land as many new units as we expected which translated into a revenue shortfall in Q3 that'll carry over to Q4.
Well utility billing was slightly under plan some.
This was offset by other areas of our business like payments, which is performing beyond our expectations.
We also announced market analytics at real World in July and talked about it and the last earnings call.
Kind of market analytics uses our vast repository of real time lease transaction data to provide highly accurate market and sub market performance on available from competing platforms.
According to Jay debt in the senior Vice President of Bell partners now that we have visibility into resident retention rates renewal rents and trade out we're hooked end use market analytics for underwriting asset management and property management.
We've seen significant new subscription traction subscription traction since launch.
And expect continued success here, especially after we link market analytics to our new valuation tool called fuel.
We also announced the acquisition of hyper Sep during this quarter.
Wouldnt be happier with the market endorsement of our new asset investment management platform called aim that integrates with high Percept. We recently closed a private equity real estate farm with $4 billion and assets under management on the entire aim platform.
And held and aim launch conference in New York were over two trillion dollars of real estate managers were represented represented and we're enthusiastic about what they saw.
Now, let's take a step back and review progress in our yes to success efforts.
We've made some gains, particularly in implementation speed. However, overall time to revenue is still at an expanded level compared to 2018, driven by larger deals and an increase mix of bookings that have an adoption ramp to full booking value and present a large opportunity.
For improvement.
I'd like to discuss some of the bigger things we have accomplished with our yes to success initiative.
First we launched phase one of our unified platform unity at real World.
In 2018.
Currently over 30% of our HCV is on this platform, which we believe is a major accomplishment roughly one year after launch.
We continue to add features of this platform supply and adapt option is continuing at a brisk pace.
We launched our process optimization initiative at the beginning of this year to improve the efficiency and effectiveness of our services at every stage of the journey.
This project has touched the entire enterprise and we're seeing gains based on delivery of functionality in Q2 and Q3 against this project.
In Q3, we hired a new chief customer officer, and gave him responsibility for unifying implementations and customer success teams in a single organization.
Finally, we want to give.
We wanted to give the customers a unified implementation journey.
And this required in building a unified implementation work flow tool.
At the end of Q3, we've moved over 70% of our backlog into our new unified implementation workflow. This tool will allow our teams to work together in a more cohesive cohesive way and Rick Booth reduce both the number of Handoffs and the time between Handoffs.
Overall I'm excited about the future for real page the building them acquisition, along with our focus on innovation and simplification will continue to create expanding opportunity for real page as we move forward.
Thank you for joining us on the call today with that I'll turn the call over to Tom.
Thanks, Steve and good afternoon, everyone.
As Steve mentioned, we're really excited about the build them acquisition due to the significant market opportunity. We can attack together the strength of their platform and customer experience the complementary nature of our platforms and our shared customer focused culture.
Let's start by discussing some of the details around building and our SMB plans.
The purchase price is expected to be 580 million or roughly 10 times the annual run rate of revenue exiting 2019.
For the trailing 12 months ending September Thirtyth 29 team building them generated $50 million in revenue, which reflects 28% growth and posted a 1.4 million adjusted EBITDA loss.
Revenue growth has been accelerating and 2019, and we expect build them to turn EBITDA positive in the fourth quarter.
Commensurate with the large growth opportunity in SMB market, our intentions are to continue to invest.
We plan to direct cross set up sell revenue synergy growth to fund a product innovation and accelerate go to market plans.
Moving on to the quarter third quarter financial results were solid.
Total revenue grew 13% year over year, which is 9% on inorganic basis and adjusted EBITDA grew 22%.
Our platform vision continues to resonate with clients with healthy booking level supported by 33 incremental incremental sales reps year over year end trailing 12 month productivity gains.
Let's review some platform capabilities that have been enriched with recent innovation that were the primary drivers a platform adoption and revenue growth during the quarter.
Our payment processing capabilities continue to drive and benefit from platform adoption across multifamily and our single family verticals.
And just over 6 million units utilizing these capabilities there are significant room for adoption and our enterprise corporate add eseventy markets.
Some of our stronger drivers of organic momentum included spend management business intelligence accounting capabilities and our vacation rental platform.
From a product family perspective property management grew 11% year over year resident services grew 17%.
And in marketing, 8% and asset optimization grew 15% year over year.
From a profitability perspective in Q3, we expanded adjusted EBITDA margins by over 200 basis points to 28.3%.
Looking at the drivers of our of overall profitability we achieved.
This was driven primarily by operating leverage and product development mdna offset by less than half of a point of gross margin contraction and an investment in sales and marketing.
Gross margins continued to be impacted by recent acquisitions and our yes. The success initiatives this year.
Product development cost as a percentage of revenue decreased 170 basis points year over year and continues to be driven by our centralization efforts as we are gaining more productivity and directing a greater portion of work efforts towards major new project work.
As a consequence, we continue to expect capitalized software expense to increase.
Leverage and DNA continues to benefit from scale efficiencies at our focus on simplification in everything we do.
From a sales and marketing perspective, we made an investment of 40 basis points in the third quarter.
This consisted of adding additional sales reps in our SMB and corporate segments.
In addition, we also added solution sales reps that continue to focus on driving platform adoption.
In preparation of the building of acquisition and to organize for 2020 innovation and growth.
We took action that incurred nearly 700000 of onetime costs.
These costs, which as you can see in the press release release reconciliation were removed from our adjusted EBITDA calculation.
Organizational design efforts are expected to have a similar impact in the fourth quarter.
During the quarter, we generated over 67 million of operating cash excluding the impact from changes in restricted cash relating to accounting treatment changes.
Our leverage ratio is now down to 1.1 times and with the clothes and build them, we expect a leverage ratio of approximately three times.
As we think about guidance for the fourth quarter last quarter, we discussed that we're focused on arresting the organic revenue growth deceleration that occurred in the first half a 2019 and saw an opportunity due to reverse that and drive an acceleration.
We had discussed the range of scenarios that could make those goals possible.
As Steve mentioned Weve achieved some early returns from yes, the success and had some great product launches, albeit we now expect we expect less opportunity for revenue in 2019 from some of the key launches.
In addition, we experienced some pressure from business areas, where we had higher expectations for revenue growth as Steve had highlighted in his prepared comments.
On balance we're encouraged that we have the right strategy to drive organic revenue growth and are well positioned to enter 2020 on strong footing.
At the same time, we're not confident that we are executing innovation and yes. The success efforts fast enough to drive the range of organic revenue growth acceleration in the second half that we discussed on our last call.
Our outlook for the fourth quarter 2019, as non-GAAP revenue of 250 million to 252 million, representing 8% to 9% organic on demand revenue growth.
Adjusted EBITDA is expected to be 74 to 76 million and non-GAAP diluted earnings per share expected to be 47 cents to 49 cents.
That translates for full year 2019, we expect non-GAAP revenue between 984 million and 986 million adjusted EBITDA expected to be 280 million to 282 million and non-GAAP diluted earnings per share is expected to be $1.74 to $1.76.
A few thoughts on our financial strategy for 2020 .
We are setting internal goals to drive annual rule of 40 performance improvements.
We calculate our rule of 40 performance as the sum of organic growth and adjusted EBITDA margin.
For example, based on the midpoint of our guidance for the fourth quarter. We expect our rule of 40 performance to be 37.5 for the full year. This is 9% organic revenue growth plus 28.5% EBITDA margin.
While we're not providing guidance for 2020 today, we plan on achieving.
Our rule of 40 performance by targeting organic revenue growth acceleration as our first priority.
We expect that will gain HSR approval and closed the building acquisition in December we will update guidance when we report the fourth quarter.
Picture, we plan to invest revenue and operating synergies back into our SMB strategy to fund both innovation and go to market.
On a combined basis, we expect that the acquisition will add approximately 150 basis points of organic revenue growth to the overall business in 2020 based on building ends existing momentum.
We expect the acquisition to be non dilutive to pro forma EBITDA in 2020 and on an EBITDA margin basis. This would be dilutive by approximately a 150 basis points, making the plan neutral to our rule of 40 target in other words 150 basis points lift in revenue growth offset by 150.
Two basis points contraction EBITDA margin, we believe this positions us well for long term growth and operating leverage.
When we closed the building acquisition, we plan to schedule on analyst day during the first quarter of 2020.
Where we will look forward and discuss our SMB strategy, along with all the exciting things we plan for 2020.
This concludes our prepared remarks, operator, let's open the call for questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation Tony will indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q for participants using speaker equipment and may be necessary to pick.
Up your handset before pressing the star keys, one moment, please at while we poll for questions.
Your first question comes from the line of John Campbell with Stephens. Please proceed with your question.
Hi, guys is Carter on for John Thanks for taking my question.
On the acquisition I believe the press release said that build you manages 2 million residential units can you provide the mix those units how many are single family multifamily, Hey, Joe et cetera.
Unfortunately, we can't we will definitely once we closed the acquisition that and we will do a deeper dive on the business what were authorized the say now.
Is that it's approximately 2 million units okay. Okay got you.
More kind of a bigger bigger picture question around risk controls.
Wanted to get your thoughts on that and whether you expect that the.
Potential technology spend or that you might act as a positive drivers as managers and owner.
However, the loss yields from that.
Well rent controls is.
Is a concern.
Particularly on the.
West Coast New York.
I don't think is going to have the.
Large impact on real page.
We actually have.
Products now the.
Were designed to enable owners and operators to generate incremental revenue through monetization of the.
The resident and other in other ways.
So.
Im not discouraged by rent controls but to.
Rent control generally are not not healthy for.
Economy, and certainly not healthy for the.
But the markets that implement them.
Okay got it that's that's all for me thanks, guys.
Thank you.
Your next question comes from the line of Sterling Howdy with.
Hey, P. Morgan. Please proceed with your question.
Yes, Thanks, Hi, guys wanted to start with the comments made about the investment.
In 2020, if you were and I know, you're not giving guidance for 2020, but if you set the acquisition of side would we think that the margin patterns that you laid over the last couple of years would continue or is there additional investment that youre putting into place. So in other words potential.
For margin compression too as you talked about help stabilize in eventually re accelerate organic growth.
Yes, thanks for the question Sterling, So before Berlin before taking your build them.
That's our that was our code name.
That's not a secret anywhere but for the building.
We would yes, it does mark a bit of a chef. So we have we have previously entered prior year is targeting 150 basis points plus of margin expansion.
We want to drive performance improvement every year and while we haven't set the target for 2020, yet we will we anticipate than when we talk about targets, we will talking to be talking about a rule of 40 performance improvement, which is the combination of organic growth plus EBITDA margin.
And as we highlighted in our prepared remarks were we see the organic revenue growth as our first priority. So we will be we are planning right now to try to strive for faster growth rather than margin expansion.
So you should expect we suspect the euro plan from us on an organic basis that is that as tilted towards revenue growth.
That being said I don't think you should plan for an organic revenue compression.
In the EBITDA margin compression from us, but we certainly plan to grow the rule 40, correct moving into 2020.
Gotcha Gotcha and then.
Together the different moving parts.
So implementation timing some of the area you mentioned the underperformance on that Overperformed.
Et cetera is that fair to say that probably going to take at least a couple of more quarters before we see that turn in growth because it's going to take time for some of these changes to basically take effect.
Yes, thanks Sterling so when we enter that we entered Q3 really I think scene.
Organic growth stabilize as we kind of looked at the linearity of the quarter in Q2, and we're encouraged with seen us stable, 9% organic growth into Q3, and I think we felt encourage that we had.
A lot of reasons why we could see acceleration will really what we saw as Q3 progressed is stability in that metric.
And so.
A lot of the things we are excited about have actually watch to market. Steve highlighted a couple just a couple of the things we lost a real world from the new product standpoint.
I think you highlighted some of the things that we've we've done on the success that are in the market.
The blend overall of execution, particularly if you take into account the the utility management business that has us at kind of a stable 9%. So it's prudent to talk about an 8% to 9% growth for Q4, but certainly we believe that were invested and we have a whole bunch of innovation to do better than that and.
When we're executing to better growth will start talking about higher numbers, but right now were growing at 9%.
Got it thank you.
Your next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question.
Hi. This is generally on for Pat you were taking a question.
First we are wondering how does billion compared to competitors like Apple and property.
Building them is a of.
Probably.
As a lower average unit.
Per client in the building boom customer base.
Building them is.
Got.
Just an unbelievably easy.
User interface and self provisioning.
Ability that supports multiple asset classes and.
They have accomplished what we are striving to accomplish was with some of our.
Products.
They are moving up.
Market.
And so.
If you look at the App folio install base, there they're larger and.
And building them is competing.
From the bottom.
Property, where the dresses larger single family.
Owners and operators with.
Trust accounting.
Needs more sophisticated.
Requirements and they're competing with the real page one site.
Install base.
Above that folio.
So.
We are encouraged because we're going to be able to plug.
Capabilities into building them that property, where and Onesite already have.
Of the.
Good thing about these capabilities as we've already re engineered them to be.
Self provisioned and they can be clicked on.
By the building them customer base, so we're going to give.
The building some customers a much richer a screening capability.
Complete suite.
Of leasing and resident.
Experienced that they don't have the they'll have a better renters insurance a much more powerful payment processing.
Platform and probably most significant from.
ARPU standpoint, we're plugging in the A.A. extraordinary.
Utility billing capability call simple bills that we acquired earlier in the year that word.
Has just a huge ROI for a single family owners and operators so.
We think theres, a big opportunity here for building them to become a much more formidable.
Competitor.
And continue to their trip to move up in the market.
Thank you and then my last question is.
What impact does the settlement between Yardi and property solutions have on Realpage.
Thank you.
We're told that they have settled.
But we've not heard.
Anything more than that so in terms of what we're seeing in the market Theres no change.
And I think the whatever settlement that reached was confidential so we'll probably never though.
Thank you.
Your next question comes from the line of Matt Hedberg with RBC capital. Please proceed with your question.
Hey, it's Dan Bernstein from Matt Hedberg, Thanks for taking our questions.
Congrats on building could you talk a little bit about the timing there why it makes sense now I know recently you've talked somewhat about.
A somewhat under appreciated opportunity at the lower another market and around single family is it simply that.
Well, if we look at the three segments that we compete in enterprise, which is 20000 units and above corporate which is five to 20.
And SMB, which is under 5000 multifamily units plus all of this single family H. away.
Of market.
That's about 50 million units in SMB.
We're generating about $306 million out of that space and.
I believe that it is by far the most underpenetrated area of the market.
And so it just made a lot of sense to us too.
To acquire.
A very successful.
So.
Competitor in that in that space and.
Really double down if you will on SMB, we think theres lot more growth opportunity there than anywhere else.
In the market right now.
Great and then could you talk a little bit about their presence in student housing I believe there is some.
You yourself, you've had a lot of activity. There. This year top 10 student housing leader when press released recently you acquired simple bills you hosted the students summit earlier this year, just a little bit more around that combine opportunity could be helpful.
You know a lot about what we're doing.
[laughter].
We do think student is an interesting.
Market.
It's clearly not the size of conventional are affordable for SMB, but.
It's interesting because the revenue.
Instead of calculating revenue based on the unit you calculated based on the beds. So you generate.
More revenue out of a student property than you do.
Conventional properties. So it is a focus of ours we've.
I think played a little catch up with the one of our other competitors who focused on this area and we've we now have what we believe as a compelling offering for the student market.
Simple bills as it was originally designed for students. So that's been a home run for us.
But it's a good important market.
And we're focused on it.
Thanks, Steve.
Your next question comes from the line of Ryan Tomasello with KBW. Please proceed with your question.
Good evening, everyone. Thanks for taking the questions.
Just first.
Parsing through the for Q guidance can you perhaps of rank the drivers.
The reduction from and I believe was previously a 10% organic guide in the fourth quarter to revise.
8% to 9% how much of that relates to specifically to these ongoing implementation issues versus the other.
Headwinds that you laid out in the leasing and marketing rollout and the resident utility management customer base and then secondly.
Absent building them.
Would you have expected otherwise to be operating within your target, 10% to 12% organic revenue growth range in 2020.
Thanks, Brian I'll take those questions and reverse order. So I would say that right now we're executing towards 9% organic growth. That's what we did in Q1 coming off 10 in Q2 that would it into Q2 coming off 10 in Q1.
9% in in Q3 in the mid range for Q4 implies 8% to 9%. So I think to score where we're at fairly we have about 9% organic growth momentum. So us as we think about looking forward. We're looking to drive a rule of 40 improvement on that 9% plus our margin of 20 at the midpoint again would be 20.
8.5, which would score out at 37.5.
And then just on the other part of the question on how much of the 9% of the 89% for the fourth quarter.
Relates to the implementation versus these other issues that you laid out.
Right.
I would say that the bigger two effects for the our revenue timing it out a couple of the new product initiatives that Steve talked about along with the resident utility management billing business and those are roughly equivalent in terms of the impact when we think about our second half.
Projection. So you look at the midpoint of our guidance range and we did end up reducing our outlook for the second half by about 6 million. The bigger two are those in their body equal.
Okay. Thanks for that and then on on building I'm, Realizing you're you're limited in what you can say, but can you help us understand what the potential revenue and cost synergies for that business will be in 2020 and beyond you mentioned the deal will be a 150 best accretive to organic growth.
Before any cross selling and investment so just wondering where do you see that 20% topline organic growth potentially going.
And what the potential EBITDA contribution might be in 2020.
I think in the past you've given stabilized EBITDA multiple targets for some of your acquisition. So I'm not sure if you're able to give that.
And I know Thats, a pretty loaded question, but.
Any color you can get would be helpful.
So the Brian Thanks, Unfortunately can't hard quantify or give you guidance on the close.
For the commonest would we did try to give some some insights so Steve talked in his prepared remarks about how we believe that with a limited overlap in the market today between.
Building them and real page that we have a big opportunity to go to together jointly with our with cross selling a product and also bringing new products. Together that are just are enabled by our market presence. So there certainly are things that we're going to what to do that are going to create revenue synergies and there are certainly operating synergies as well so what I tried to highlight.
On the call as our plan is to take both of those and applied and and apply the synergies to investing for growth.
We're expecting building them to.
Turning to adopt positive in Q4, and what our plan today is that we want.
Building them to be non dilutive to our EBITDA next year, so all upside to to synergies, we want to imply and reinvest back in the business.
So before synergies looking at building them, just adding their momentum today. It would add about 150 basis points on the way, we calculate organic growth to our organic growth momentum and it would be dilutive to EBITDA margin by 150 basis points, so effectively neutral to our overall rule of 40 score.
And then just one last one if I could the.
ARPU for building and looks to be around $30 today based on $60 million run rate is there a tam for that ARPU that you see overtime.
Yes. Good good question, we do plan on on walking you through in detail.
Some Tam analysis that we are evaluating Nevada and want to evaluate jointly when the deal closes. So there is a significant expansion we do expect in the Tam as we go to market jointly and as we've revised our look in the SMB market I think we talked a little bit about our view on on the Tam in this market expanding as the market is more.
And more ready and frankly, just as our software and software from the best in class platform. A building them has has come to market with its push buttons self configured.
Low cost of support it's the product is strong in the markets ready so.
We'll go through that in detail when when we closed the deal and and have our analyst day.
Thanks for taking the questions.
Thank you.
Your next question comes from line of Stephen Sheldon with William Blair. Please proceed with your question.
Hey.
I guess first can you talk some about what bill. The gives you that you couldn't have tried to build out yourself and then secondly, just maybe on the timing why this was the right time to complete and acquisitions magnitude, especially as you're still.
Working through some areas, where you George talked about trying to improve execution.
Well building them.
Is the.
Catalyst for expanding our investment in the SMB space, It's a 300 plus million dollars business for us and we think we can grow at.
At a substantially.
Faster rate, so we want to invest in this.
In this area that is so underpenetrated.
Could could have we built the same thing that building them has yes.
It would take time and more important we wouldn't have 2 million more units.
Which which matters.
I'll add one more thing Thats, how that's the one to one thing that we're particularly excited about is bringing on the team and the culture built in so the leadership team.
As is as Bubbling with excitement about this as we've talked about the the opportunity for things we can bring to market.
Team building right now is having a town hall with.
With some of our real page leaders that are joining to former joint leadership of of our go to market plans and.
Yes, I think we're excited about the the people in the culture, we're bringing together.
Okay.
And then I guess, you've talked about investing more in the property where business can you maybe just talk about what those investments could look like in terms of the.
The product in the go to market strategy.
I wouldn't characterize it as property where specific it's SMB specific.
Everything from a value add service perspective, which represents the lions share of the revenue opportunity that we integrate into property, where we'll also be integrated into building them.
Okay. Thanks.
Your next question comes from line of Jason Filipino with Keybanc. Please proceed with your question.
Hey, guys. Thanks for taking my question I kind of two related ammonium first on because if we just take an average from the press release. It comes out to about 120 ish units per customer familiar Jim do you see an opportunity for that to get larger and then second related question as we think about the.
Growth opportunities in SMB build them, a 2 million units.
We'll take a 50.
It's more of.
How do you think of growth between you and at San ARPU expansion for presently thanks.
Yes, thanks, Jason So one of the more exciting things about building them as that they have engineered the products to work so well the off they offer 24 seven phones part as a normal course of business to something else that none of the other competition does because their products just don't work so well so the iPhone supports expensive and they make a part of a premium path.
Goods.
As a result building has had tremendous success selling to customers with third important 50 units 100 units 200 units.
And for that segment of the market. They are the they serve it efficiently and effectively like no one else Ken.
The platform gets stronger every year and partly I think are the previous question on why now.
Building them really has a rich platform that is ready is ready to take them to mixed use asset class and as we've talked with building them over time, we share kind of vision for where the market going on how we can engineer or the best of what we havent our products with the best of what they're having to bring out more products. So certainly we.
The project that build niamh can.
Scale well beyond this and we'll talk a little bit more about the state of the business when we can give more details.
But there's a bright future for that platform as is there a bright future for the property where platform, which which today serves typically much larger more complex customers.
And Steve highlighted as well.
The development that we're going to build together with with the in the combined installed base and the data that can fuel there the capabilities, we can develop really unlocks the SMB opportunity.
Operator, Jason any there.
Your next question comes from the line of Peter Heckmann with Davidson. Please proceed with your question.
Good afternoon, gentlemen, could you talk a little bit more about bookings year to date, where you've seen strength. If possible can can you quantify in terms of percentage year over year.
How bookings it worked and if possible by segment and by tier.
So I'll give you some qualitative comments, we though as you know we don't disclose our of our bookings growth, but we are seeing healthy bookings growth.
Our our bookings growth as I think as I commented on my prepared remarks are growing because weve expanded.
The capacity of our sales organization.
So thats up about 6% year on year, and we're also seeing productivity productivity lift on top of that at the same time I would say that a couple of the issues as Steve pointed out.
In particular were not our bookings on the back of some of our new innovations we've launched this year.
Our timing out later, along with we've seen some marginal weakness in our utility management business. So a net I would say that our bookings are healthy and certainly supportive of our outlook for 9% to 10% growth in Q4.
Okay, and then you may defer this to your analyst day, but any thoughts on how build the helps you achieve that 2020 goals you laid out.
I think I think let us finish our strategic planning process and get past HSR and give you a combined plan.
But.
Before before we talk about synergies and go to market plans building itself does change the model a little bit it accelerates our organic growth.
Hasnt, an equivalent negative impact to the EBITDA margin percentage.
And we're certainly going to go new outline a plan for you on how we plan for long term growth and what we're going to in 2020 to analyst day.
Okay. Thanks.
Your next question comes from line of Mark Schappel with the Benchmark Company. Please proceed with your question.
Hi, Thanks for taking my question most of my questions have been answered just one though Tom with respect to the extended implementations that you're addressing through your yes to success programs I was wondering if you could.
Just give us a little better idea when the company expects this issues to largely be resolved.
Well I think we're putting in place the things to attack it with rigor and Steve highlighted a few of them in to put an exclamation point on we're getting much more sophisticated with tracking the whole yes. The success.
Process and the customer journey through that process and so I think to the extent, we have more time and that mapping through all phases of it we can get we can get better and better so.
We we've been saying the this all along that there is there's certainly short term things that we think we're going to improve but we recognize we're in a long term gain and as we think about.
Where we want to be over the very long term.
We want to drive dramatic reductions in time from.
The time, a customer decide they want to buy our services at the time, they're fully successful. So we think there's a huge opportunity there. So it's a little it's a mix continues to be mix of a short or long term game and.
We're going to we're going to set modest expectations for what we do as we think about the immediate future.
Thank you.
Ladies and gentlemen, Weve reached the end of the question and answer session and this does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.