Q4 2019 Earnings Call
Greetings and welcome to the real page fourth quarter 2019 conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host Mr. Rhett Butler, Vice President of Investor Relations. Please go ahead Sir.
Thank you.
Good afternoon, and welcome to the real page financial results conference call for the fourth quarter and year ended December 31st 2019.
With me on the call today or Steve when our chairman and Chief Executive Officer, Tom Arnold, Our Chief Financial Officer and Treasurer.
Mark today. We will include statements that are considered forward looking within the meaning of federal securities laws.
In addition management may make additional forward looking statements in response to your question.
Looking statements are based on management's current knowledge and expectations as of today February 27, 2020 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 27, 2019 as amended on November 5th 2019, and our quarterly report on form 10-Q previously filed with the FCC on November eight 2019.
And our earnings release and materials distributed today.
Realpage undertakes no obligation to update any forward looking statements, except as required by law.
Finally, please note that on todays 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 and a reconciliation of the differences between each non-GAAP financial measure in the comparable GAAP financial measure are included in today's 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 will hand, the call over to Steve.
Thanks, Red welcome everyone and thank you for joining us.
Q4 was a strong quarter for real page and I'm pleased that we exceeded the high end of our revenue and EBITDA guidance.
Many 19 was a pivotal year for real pay just released more internal innovations and acquired more external innovators than any time in our history.
Our platform is thinly penetrated across the 580 billion dollar rental housing markets in the U.S.
We estimate this market only spends about 1% of that a male foam technology excluding telecom.
As part of our 2019 investments, we expanded our strategic platform to provide enhanced benchmarking transparency to help owners identify yield leakage.
We believe our industry can capture 300 to 400 basis points of incremental year old by increasing technology spend and our benchmarking platform enables them to zero in on where to find this yield opportunity.
The pace of new product innovation for resident services, our largest and fastest growing product category continued to increase in December we deployed active building E. Commerce. They solution that is purpose built to enhance the resident experience and drive incremental yield from amenities.
Like spaces services and events.
Radically redesigned custom branded mobile App enables residents to reserve and pay for amenities spaces and events directly including such things as parking guest suites self storage clubs with Clubhouses conference rooms Yoga class.
Classes, a dog walkers and more so for clients of monetize 25 different amenities and ratable Swift guest suites and parking generated generating the most incremental revenue.
We expect active building to become an even more powerful resident engagement platform with our acquisition of modern message, which provides loyalty and reward programs for residents and proactively helps properties improve their online reputation assessments for fall for Hey.
Modern message is being tightly integrated into active building.
In January we enhanced our contact center to capture all prospect Communications at every touch point on every channel via text chat email or phone in a single integrated gas card and we deployed dynamic landing pages that personalize the follow up to the prospect with visual.
Email and message content that matches the prospects stated interest.
We're now testing a new eye contact center scheduled for release into too but.
Activates on a.
Well, what we call Simon whose smart enough to handle most questions without the need for human agent.
However, if a prospect ever get frustrated with Simon.
Example, truck changing a reservation using a bar on an airline.
The prospect will be automatically routed to alive agent World prospect can request alive agent at anytime.
Simon will be available for Chad text email and phone calls.
Because we will augment our a. I botched with humans, we expect that our new offering will drive up the quality of the experience for consumers, while simultaneously driving down the cost of our contact center for our clients all with absolutely no decline in the already great conversion.
Rates that we deliver.
We continue to integrate our acquisition of leased labs into our marketing suite and are now offering a full range or range of go direct services and award winning lease lab designs on top of the real page website platform.
Holly residential a midsized operator with over 40 properties implemented lease labs in the first six months realized 139% organic traffic increase a 219% direct lead increase and a 229 per se.
<unk> increased an appointment schedule.
Well, that's we're excited about our leasing and marketing suite powered by at least labs, because they can shift lead volume from expensive Internet listing services to direct channels.
Clients like Olympus property, managing over 17000 units were able to reduce our less spend by 31% cost per lead was reduced significantly by 70% and the average annual leads per property increased by 104% using least labs.
Earlier today, we announced a revenue management, a multi dimensional tool that harmonizes the optimization of price demand credit and leasing agent behavior, producing even more yield and price optimization alone.
The timing is perfect sense, some markets are beginning to soften and clients seek ways to achieve the maximum yield on their assets.
There are two capabilities within a revenue management that I'm, particularly excited about the first is a just in time demand optimizer that fluxes marketing activity to either spend up or spend down based on the occupancy risk. This allows our customers to get the leaves me need for that.
Just for plans and fill their vacancies as an alternative to lowering price.
The second capability within a I revenue management, which is even more exciting is a new amenity price optimizer that uses statistical analysis of internal and external benchmarks to dynamically set the price of a major major amenities, such as parking storage or guest suites.
This is an area that clients are not typically focusing on and we've seen yield improvements of as much as 100 basis points achieved by early beta users by simply charging the right price if the right time for all the amenities and an apartment that residents are willing to pay for.
By the way tries directly into active building.
Another innovation released last year as they are screening one of our first self provisioned solutions launched from learnings derived out of our massive repository of data.
During the back half half of 2019, we seamlessly provisioned a. I screening to nearly 1.7 million units.
Our data is showing some pretty interesting client insights for example, a top 10 read is experiencing an 11% decrease in their default rate within the first four months of deploying a I screening.
Another 10000 unit client has saved $23 per unit per year for an estimated total of $230000 worth and savings over just six months post implementation of a screening.
Another area, where we're gaining traction with innovation is our asset and investment management platform known in the market as aim.
And provides a 360 degree view across the investment lifecycle, empowering general and limited partners to collect validate consolidate and visualize real estate and alternative investment performance data with global reach.
Launched in October of 2019 early successes show enormous excitement over this platform.
Additionally, our acquisition of Investor Management services also known as I am mess in December makes aim even more powerful because we can now mark to market real estate assets every month and push the valuation through the I'm asked me waterfall engine to all limited partners.
Since the acquisition 39 Journal partners have signed onto in to add investment management capabilities provided by the I.M.S. solution.
[noise] now are in an inorganic innovation efforts also known as M&A.
Have focused on bolstering, our SMB leasing and marketing renters insurance and institutional capabilities with the acquisition of building them lease terms solutions simple bills modern message try percept and Investor management services, these acquisitions or in varying stages.
The integration, but we're very excited about early success. For example, we have already brought realpage pricing power to building with expected savings of $2 million in their cost of sales over the next 12 months building was a great acquisition for Realpage It turned profitable in the fourth.
Quarter of last year, and we expect accelerating revenue gains as we integrate powerful real page value added services into the building in platform.
From a simplification perspective, we've recently promoted Mike Bridie as the leader of our emerging markets Division.
Mike was formally our head of M&A and is returning to his operational routes.
Mike will oversee our institutional SMB and vacation businesses.
Because well versed in the integration of over 40 acquisitions at real patients experience will be important as we continue integrating building.
In connection with this move actually Glover was also promoted to president of real page responsible for every aspect of our multifamily business. In addition to sales marketing and client success.
Actually it's been pivotal in driving our sales and marketing strategy and reengineering, yes to success processes to speed up meantime to implementation. We're now activating as fast as we're booking and expect to see more acceleration in 2020.
We believe the elevation of Ashley and Mike streamline our organizational structure, enabling accelerated innovation and continued platform traction.
In closing, we have reevaluated, our total addressable market pork Tam.
Which is not updated for nearly 10 years.
We believe our ARPU.
Estimates have become stale and do not reflect the reality of what some clients are buying some realpage today.
Overall, we believe our Tam is.
Over $20 billion up from 13 billion.
Which has been our estimate for several years.
There are nearly 21 million multifamily units in the U.S. from a product perspective, we're now projecting an aggregate ARPU you for multifamily over $400 per unit adjusted for proper take rates of each category of apartments, such as a conventional affordable student.
Cetera.
Single family represents another 24 million units with an average ARPU opportunity of over $300.
And H. away now have has an ARPU opportunity of about $100. Thanks to the building an acquisition.
This is a good time to being a real estate technology space, We believe that market will expand dramatically as owners become more aware of the potential three to 400 basis points of incremental yield, but as possible with technology solutions on the market today.
We believe the market is way underpenetrated with less than a third of the total addressable market monetize today.
And we believe real page is positioned better than any other prop tech solution provider to garner more share than others because of the breadth of our platform the depth of our salesforce and our commitment to our north star of innovation and simplification. Thanks for joining us on todays call with that I'll turn the.
The call over to Tom.
Thank you Stephen good afternoon, everyone.
During 2019, we launched one of the largest waves of innovation on the company's history.
Made six strategic acquisitions, including one in January.
And implemented a comprehensive program that is yielding returns and driving our yes. The success client journey [noise].
Our strong results for 2019 reflect these efforts and put us on favorable footing as we enter 2020.
We closed three of these acquisitions since we reported earnings last quarter building I'm I'm S and modern message.
We're very excited about the combined go to market and infusion of talent to drive growth in our SMB institutional and leasing and marketing business areas.
Collectively these acquisitions that 71 million of revenue in 2019, including 54 million from build them.
We believe there's significant potential for organic revenue growth.
Especially the cross selling and integration efforts, Steve highlighted can take root.
Financial performance for 2019 reflects strong revenue growth of 13% compared to the prior year adjusted EBITDA growth of 22%.
We generated approximately 240 million of operating cash flow, reflecting 28% growth compared to the prior year, excluding the impact from changes in restricted cash relating to accounting treatment changes and excluding a 12 million dollar working capital impact related to the building them acquisition.
Moving on to the quarter fourth quarter financial performance exceeded our guidance.
Total revenue grew 12% year over year, which was 9% on an organic basis.
The acquisitions, a build them and Imus contributed approximately two and a half million dollars of revenue during the quarter and adjusting for this our total revenue performance exceeded the high end of our guidance by approximately $700000.
Adjusted EBITDA grew 25% and exceeded the high end of our guidance range by nearly $200000. Despite a slight negative impact from building them and I am S.
[noise] payment processing when when combined with Retros insurance continued to be the biggest drivers of growth compared to the prior year.
Other drivers of growth included asset investment management.
Business intelligence.
Property management capabilities, such as Ops solutions in addition to our vacation rental platform.
From a product family perspective property management grew 10% year over year.
Leasing and marketing grew 8%.
And asset optimization grew 13% year over year.
We did experience headwinds and leasing and marketing related primarily to the contact center, where prices are declining as new area bots replace what humans used to do.
Steve addressed our strategy in this area and we remain very bullish on leasing and marketing growth.
And all other areas, especially in our lease labs outperformance.
From a profitability perspective in Q4, we expanded adjusted EBITDA margins by over 300 basis points to nearly 30% compared to the prior year period.
Overall profitability was driven primarily by operating leverage and product development and DNA.
Adjusted gross margins were flattish compared to the prior year driven by acquisition integration and yes. The success process improvement efforts.
Product development cost as a percentage of revenue decreased 230 basis points year over year and continues to be primarily driven by our centralization efforts that are increasing the efficiency of our development.
Leverage and GE any have 60 basis points continues to benefit from scale efficiencies and our focus focus on simplification across the business.
During the quarter, we generated approximately 58 million of operating cash excluding the impact from changes in restricted cash relating to a comment treated treatment changes.
And excluding the working capital impact due to the building acquisition of approximately 12 million.
Our leverage ratio is now 3.1 times, reflecting the close of the building and Imus acquisitions.
This is comfortably within our two X the Forex rates, we believe is optimal operationally.
[noise] [noise] during the quarter, we repurchased $8.5 million worth of real page stock at an average price of $53.39 retired 159000 shares.
We have approximately.
$91.5 million left on our authorization.
[noise], our strategic platform vision continues to gain traction.
Excluding the impact from acquisitions, we can to continue to see a healthy mix of growth in the new units and ARPU expansion.
From unit perspective, we grew total units by 2.3 million units compared to the prior year, which includes 1.7, we need a million unique units added from the building them acquisition.
[noise] bookings growth continues at healthy levels supportive of our plans for Twentytwenty [noise].
[noise] were entering 2020 with a larger sales team. The team is 10% larger include that in Q3, and 19% larger than exiting 2018 and into your with 557557 sales team members.
This growth was driven by.
By expansion SMB, an institutional teams, primarily due to the build them and I Miss acquisitions and also includes expansion across the rest of the team.
We are well positioned to drive the growth in our plan with the investments we're making.
Turning to our outlook for the first quarter of Twentytwenty, we expect to non-GAAP revenue of $277 million to $281 million.
Adjusted EBITDA is expected to be between $70 million to $72 million.
Reflecting the typical Q1 step up in payroll taxes as well as our investment posture to drive growth as we enter 2020.
Non-GAAP diluted earnings per share is expected to be 41 cents to 43 cents.
For the full year, we expect non-GAAP revenue of.
1.165 billion to 1.185 billion, which reflects an organic revenue growth between 10% to 12%.
Representing an acceleration of 100 300 basis points.
Total revenue growth of 18% to 20%.
Adjusted EBITDA is expected to be $320 million to $324 million.
This reflects a solid 14% to 15% growth in absolute adjusted EBITDA dollars.
And includes an impact from acquisitions and strategic investments that results in a margin of 27% to nearly 28%.
In line with the framework, we like we laid out on last quarter's call that gives us flexibility to prioritize growth.
As a reminder, organic contribution margins on a year over year revenue growth for real page continued to be in the mid to high Fortys.
Or greater which we which speaks to the long term profitability potential of our company.
Non-GAAP diluted earnings per share is expected to be $1.95 to $2.
We believe our full your expectations prudently reflect current momentum in the business and highlight our intention to significantly lift our performance.
Our full your expectations also significant significantly exceeded consensus estimates.
Fully adjusted for the acquisitions.
In 2018, we set an ambitious goal we discussed the goal of a billion five in revenue in 2022 with the run rate of 500 million and in EBITDA.
We continue to bleed these are good goals for us.
Last quarter, we discussed how we wanted to target revenue acceleration in the near term and that would come with the tradeoff of less margin expansion.
As we look over the next three years, we see more upside potential to the billion five and revenue goal.
We may continue to target some revenue growth acceleration beyond our Twentytwenty plan.
Despite that we continue to feel that a 500 million dollar EBITDA goal is ambitious but one we are driving to achieve.
Lastly, we are announcing our intention to hold our analyst day during the real World user conference in July.
We believe a deeper dive into our strategy combined with access to a significant portion of our client base will be compelling for investors and will help explain our view on why we believe realpage represents a significant investment opportunity.
We look forward to saying everyone there.
This concludes our prepared remarks, operator, let's open the call for questions.
Thank you at this time will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question Q you May press Star too if you would like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we pull for questions.
[noise]. Your first question comes from line of Matt Hedberg with RBC capital. Please proceed with your question.
Hey, guys, it's Dan Bergstrom for Matt Hedberg here, Thanks for taking my questions.
See the initial organic growth rate outlook for 2020 is impressive I think at 10% to 12% hundred a 300 basis point acceleration as we mentioned could you just highlight a couple things here that have changed over the last several quarters that that really have yet, but in a better positioned to execute on that 10% to 12% growth rate here versus.
Obviously.
Thanks, Dan I'll take that we.
First and foremost have made some acquisitions the.
We'll drive some organic revenue growth.
And just as important we've introduced so many new innovations into the market the that are driving significant incremental yield to our customers that.
We are very confident that.
Organic revenue growth is going to accompany that.
Or that the launch of those products.
Only 19 was as of year of heavy investment for Us 2020.
As the year that we.
We expect to start to reap the benefit of some of that investment.
That's that's great. Steve. Thanks, then maybe more specifically in one of those potential or organic drivers.
In the prepared remarks, you talked about building them traditionally purchasing outside value added services I think those would be things such as payment screening things like that.
I'm, assuming those haven't contributed much from a financial perspective, and it sounds like you're expecting more profitability with the attach a realpage value added services.
Is there any way to get a sense of the potential magnitude of that opportunity.
There is there way to measured as potential [noise] ARPU uplift per unit or building or something like that.
Well.
Building them was underpenetrated in value added services compared to real page.
So we clearly see an opportunity to.
Accelerate the penetration of all the products you just mentioned.
We also.
Candidly have a much higher profit margin on.
Our value added services and building them had primarily because they were buying them.
Through third parties.
And so.
This is one of the reasons why building in was such an attractive acquisition, we see a lot of revenue synergy opportunity and just as important we see the.
The.
<unk> expense.
Efficiencies that we can achieve just just simply by using.
Of real page products that.
Our better.
Because you've been around a lot longer and are less expensive to operate because of our size.
Great. Thank you.
I'll add one more thought there Dan we also bring on.
Just over a million six and unique units to our SMB marketplace, which which gives us.
A.
Brings on that rich data pool right. So that we can we can have even stronger value added services and bring more innovation market over time. So the combination here has has some pretty incredible firepower as we look down the road.
Your next question comes from line of John Campbell with Stephens. Please proceed with your question.
Hey, guys, great cost of the year congrats.
It seems like you've got the stage set for kind of new and exciting year on the I guess from SMB front I'm guessing you guys are going to attack that market pretty hard. This year. I mean, you have building in place it sounds like you're gearing up investments as well I talked about some of the south.
Headcount increases sequentially versus Q3, Q, but could you maybe just talk through what else you need to do to better position yourself for that SMB opportunity how music continuation Upsells team growth do you need to adapt some of your I guess legacy offerings and the ancillary offerings to better serve SMB market any kind of update would be great.
I think the Oh.
The plan is a exactly as I explained it we're we're focused on.
Improving the capabilities of all of the value added services the building them offers.
We're going to for example be pushing our website technology into building them, which is.
Much better than any other competitive offering in the SMB space.
And we're pushing our renters insurance platform into building.
Our AI screening will we push into building them, our payments engine, which.
As a bunch more profitable than theirs will be pushed into build them. So bill sharing.
Oh I Miss maybe the most important.
Simple bills, which is a.
Product, we are a company we bought.
In.
Mid Twentys 19 is just dead on.
The best.
Solution for managing a utility bills and we're seeing much interest in a in the owners and operators of single family properties in the deploying the single or the simple bills platform.
By the way the resonant pays for that not the the owner so it's a kind of cost neutral but.
Dramatically reduces the.
The cost in the.
That owners incur to do manage utilities.
So as their resident base turns over.
Okay. That's helpful and Steve I, just want to get your high level thoughts on going costars, the pending acquisition of rent path and how that might alter the I'll Netscape landscape.
[noise] well Andy is nothing if he is not gutsy.
He couldn't buy rent path before because the Geo Jay would have tidy up in court probably forever.
So you just waited until their high yield lenders forced them into bankruptcy.
Of course now you can argue that that the failed from defense should allow him to.
Move forward with this acquisition.
I think this is a chapter right out of the rubber Baron playbook.
Rent path as a good company and it would be fine if they're lenders didnt smother them with high yield debt.
And I certainly understand why costar wants to buy them. It's the last piece of the puzzle they need to dominate the iOS lead aggregation space in multifamily.
Based on our own our analysis over there.
Over about 16 million gas cards submitted in the last 12 months.
Costar and rent path together represent approximately 70% of all leases generated through wireless channels. So this this is a extreme concentration.
I don't think lead Aggregators are.
The friends of our industry once they control who shows up at the front door they control our client.
Costar is a great company and I admire the management, but.
They have a market capitalization of $25 billion an after this acquisition should it go through I think that.
We will continue to grow kind of following in the footsteps of the hotel.
Aggregators.
Who have essentially seized.
A huge amount of the of the equity stack out of that industry.
I hope the D.O.J. and more importantly, I hope the the industry figures out what's happening here in stops it.
Okay. That's helpful. Thanks, guys.
[noise]. Your next question comes from line of Ryan Thomas Cielo with KBW. Please proceed with your question.
Hi, Good evening, everyone. Thanks for taking my questions. I was wondering if you can talk about how you expect the organic revenue growth and margin performance to ramp throughout the year and perhaps what the one Q guiding suggest for organic growth. If you. If you didn't already give that in your prepared remarks.
Considering we're already closed about to close out the first quarter here, perhaps you can give us some real time insight on how the the Reacceleration is performing and how building.
Is performing in the early stages so far.
Sure assay, Ryan hope you're well so.
Our Q1 guidance includes a range of 10% to 11% on organic growth.
On the topline and as we highlighted in the calls while our organic growth for the year is a 10% to 12% range.
Our.
Our EBITDA margin.
Ramps through the course of the year as weren't as we'd love to look at our margin expansion in Q1, we're expecting about a 200 to 250 basis point year on year decline in EBITDA margin.
As a couple of factors here at play first we are expecting about 100 basis point decline in gross margin. This is primarily due to.
Acquisition integration and the mix along with the continuing investment we've been talking about an yes the success.
The rest is growth investment for the for the year as we think about that growth investment the growth investment is front end loaded on the sales and marketing side as we ramped a little bit more smoothly on the product development side as we look across.
Got it.
Fall and.
No I was wondering if you can provide us with an update on on air screening I know you provided some color in your prepared remarks.
From my understanding this is one of the first large new product launches where are you took the a free time free trial type of approach with a push button saw competitor configured product.
So I was wondering if you can see how many units are actually paying for that tool today, and what kind of take rate.
Represents of the 1.7 million units that you mentioned opted into the chronic so far.
And why did you know if it's free trial method something that you plan to utilize more going forward to encourage adoption of new products.
We may use it in the future, but a 90% of the.
The clients that.
Opted into that a so called free trial. It wasn't a free trial in screening it was a free trial on the price increase that was associated with the with the screening product.
Not 90% of the 1.7 million units that we deployed it on a.
We have.
Pass there.
Date, when they could make a decision not to you continue to use it.
I might add we have not turn this on yet with the on site screening customers.
Because we're just finishing the integration of AI screening into onsite. So we're expecting.
Another fairly significant lift.
When this deploy as in the next quarter or too.
What are we do it again, it's just going to be on a case by case basis, I think anytime we can self provision a feature like this.
The benefit of turning it on for everybody and.
Telling them that.
You can turn it off and we want you don't have to pay for the increase or you just let it run is is a way to drive adoption very quickly of these new features so we like the the concept and I wouldn't be surprised if you see it again.
And then Ryan the the impact on 2019 was just under a million in revenue I think you identified.
Correctly that we we launched this first as a free product for the for the first three months and then a money back guarantee for that for the next three months in last year and and roll this out to customers and a in a remote push button <unk> self configured watch over the course of the Q3 in Q4 so.
The run rate of business as we enter 2020 is a little bit higher than that I called about 40 basis points lift plus two our growth and.
Revenue for 2020, a and the other one of the exciting things about this product to is that that's that's the installed base growth. So.
I think the.
The sales organization and account management organization is excited about the opportunity to garden and win new business with this product as we look forward.
Great and then just if I can squeeze one last one in.
A large competitor that large competitor that was just alluded to earlier also recently launched a suite of digital tools for owners at the low end of the rental market, primarily screening and online leasing and payments.
You know I think it seems the focus of that pushes actually even at a lower point than building them initially but.
Steven Tom I was wondering if you had any thoughts around that and if you think that this might in some way increase the competitive pressure on doldrums cross selling strategy.
Look I think coasts costars, who we're talking about is.
Doing what they should do.
The.
Thanks to a bundle package to the low end of the market makes a lot of sense of but I also think if you're a building them customer as real page offers the same thing tightly integrated with their system of record.
The clients are going to use that and not a stand alone.
[noise] product, that's not tightly integrated particularly on the payments I mean that you may get a screening payment.
Through that platform, but I can't imagine the to anybody would pay their rent through costar.
Thanks for taking the questions.
[noise]. Thank you right.
Your next question comes from line of Matt Walravens with JMP Securities. Please proceed with your question.
Great. Thank you.
I guess two questions Tom one for you which is.
The operating cash flow came in a way above what we'd modeled so loved to get some color. There and then I'll just I'll just throw the second went out Steve I'd love some more color on how.
You think only build the m. will change that competitive dynamics with yardi and with that folio.
Yeah. Thanks, Thanks, Pat I'll take the cash flow question first so we do continue to be encouraged by our operating cash flow leverage.
I think we continue to see that tracking well with our EBITDA expansion.
I think we're applying good discipline to our.
Investment in terms of Oh of Capex that enables those to detract quite well. So I think we're happy with the expansion of operating cash flow Unlevered free cash. So I think as we look into next year.
You should be expecting that will pick up a little bit more interest expense associated with the the acquisitions, but otherwise I would continue to expect.
That relationship to track between cash on EBITDA.
[noise] with respect to the.
SMB market.
At Folio and Yardi product called Breeze is.
Are the two.
Primary competitors in that space or a bunch of other smaller ones, but those are the two.
Primary competitors.
By combining all of the value added services that real page offers into our.
Building them and property where solution I.
I think we have a clear.
Product.
<unk> leadership position against both the.
Both these competitors.
Please recognize this is a huge market I think if you take SMB.
Others North of 50 million units there. So there's a lot opportunity for all of us to continue to grow in that space.
If you look at our.
Revenue breakdown now, we've got about 320 million $325 million of.
Revenue in SMB coming out of 29 team and I clearly believe that segment will be the fastest growing.
Category or segment of the market that we compete.
So if the color you're looking for yeah, that's good and at what would also be helpful. Just started to just.
Simplified a little bit for us.
Steve in terms of the number of units like how do we think about where.
Well the EMS real sweet spot is where at polio sweet spot is and where you already as might be in the SMB.
Well I think.
Building them as.
Slightly below polio.
They tend to sell to owner operators that manage a fewer number of of properties.
Now that's changing because as we surround build them with all of the capabilities that.
Realpage has then there's really no.
Constraint on our ability to move up market with building.
I think at folios average unit counts about 300 on their customers and billions about 90 so.
That's helpful.
That's you know clearly we want to move up.
In the market and that's that's building EMS focus and where I think we're going to really when is in the service levels that building them offers in the of.
So from self provisioning capabilities that building provides the accounting solution that realpage brings to the table is far superior to do at folio.
I just think we've got a good run here, but.
Again, it's a huge market so I wouldn't Uh huh.
Everybody is going to win.
Yeah, I'll add to that that we're closing in on 10 million total units and the SMB market at Realpage, obviously, where we're stronger before before the building an acquisition in the upper upper end to that SMB market.
But it certainly feels feels to me like the combination of a built in real page doesn't leave us a sweet spot in the middle anymore [laughter], Okay, great. Thank you.
Your next question comes from line of Joe Vruwink with Robert W. Baird and company. Please proceed with your question.
Hi, Good afternoon, now I just wanted to follow up I think it was set in the prepared remarks that maybe the end markets are changing a little debt.
Flower rank growth or higher vacancy rates no. No question the market is still healthy, but how to some of them. Our recent changes maybe help drive increased engagement with prospective customers maybe more so that was the case throughout most of 19.
Oh the.
The multifamily.
Total housing market is still robust I mean, its rents are growing occupancy is our at near record highs.
But you are seeing some weakness in.
Certain markets, particularly in the class a.
New construction.
Area.
Because of the amount of supply that's coming in concentrated in that particular asset class.
As as.
As markets loosen a little bit that's that's really good news for real page, because our products become more and more important.
At least from the perception of the buyer I personally think our products are important notwithstanding what market your end.
But but.
As as markets soften a little bit I think people all want to.
To start.
Using revenue management, the idea of monetizing amenities that they've heretofore given away for free is a big deal.
The.
Efficiency of there of the way they generate.
Leases is very important if they can improve conversion rates. It's it helps.
Soften the blow of lowering price, if you're not getting enough demand.
Oh.
So we like where we are.
And the candidly I hope these markets just continue to.
Move along the way they have been <unk> really.
I think in sort of a perfect spot right now from a macro economic perspective.
[laughter], that's great and if I can squeeze one more and just started building.
I think I heard that exited the year at 54 million, Anna and I think a quarter ago <unk>. That's always maybe 52 million I know kind of small numbers, but anything you point out that maybe a help build the incentives ahead of the original plan and 29 10.
Sure, absolutely, Joe and and thank you and congratulations for launching coverage by the way as well. So yes building them exceeded what we thought would be 52 million I'm not I think they had a healthy close to the year.
And I.
I think thats just natural momentum we highlighted the business has seen some accelerating performance throughout the course last year, so that that trended continue but theres a nothing exceptional colleges to healthy close for the quarter.
Okay, Great Apple watch it turn profitable guys I think that that's a that's a big deals [laughter] added like online [laughter].
That's all Grad save time, thank you very much.
Your next question comes from line of Jason The Lino with Keybanc capital markets. Please proceed with your question.
Hi, Thanks for taking my question is actually doesn't on for Jason.
I'm not a question on building on if I may so I know that you guys have laid out some of the integration plans for bill. The I'm. Just wondering if you can you give us a little bit comments on the feedback from customers on building them.
We've only owned this since the what December 18, Theres a flux right.
So it's a little early for us to start quoting a success stories.
And I expect we're going to have a bunch of we'll talk to you about a if you come to analyst day in July.
Generally the market is absolutely thrilled to see what they perceived to be a great company now having access to two value added services that are best of class. So generally I think this.
This market is is a highly receptive to this.
A combination and I think.
It's going to be a good good space for us.
I'll add to that Jason I mean, what what would actually be Devon, while we have seen is the teams that have come together. So the real page SMB teams that has now integrated into the into the building mtwom to form one one unit and the the excitement or out of the buildings and the real pages that have come together is palpable so they.
They are not only working on the things that Steve talked about but other things that we're not ready to talk about yet which is what's in their future roadmap and and kind of the big things are they're looking to tackle. So I think you're going to hear you hear a lot more about that nice I certainly expecting we'll we'll be able to expose some of that team do you at the analyst day when you when it comes.
A real world Newbuilding build to hear from some customers directly there as well.
Great. That's looking forward to somebody success stories. Another question I have is.
And then you're still talking line, which is around 16%.
Total revenue, but just kind of like flat year over year. Just wondering if you kind of elaborate on dot and I wonder like any major changes that have been and should we.
Expect is trying to continue.
Oh, absolutely. So we did ramp investment in the sales and marketing line I'm, particularly as Q4 progressed. So we are entering the year on a a bit more of an aggressive posture in terms of the way we invest on we've also been continuing that investment expansion here in January so relative to last year I would say that.
The the expansion sales marketing is coming a lot a lot more around the December January timeframe and strategically we plan on doing the bulk of the expansion here earlier in the year, then I think we did last year.
Great. Thanks.
Your next question comes from the line of Sterling Audi with Jpmorgan. Please proceed with your question.
Thank you. This is Jackson ader on for Sterling Tonight, Good evening.
Our questions. My first question I'd say, Steve you mentioned, a couple of times about the.
The SMB market.
Allow being large enough to where it's going to allow multiple winters.
So if you think about maybe that 15 million unit.
Total addressable market, how how much of that do you perceive to be green field, where you can basically go up again, no incumbent or very little competition.
I think.
The bulk of it.
If you if you look at that market. It includes a apartments or multifamily was under 5000 units.
It's pretty heavily penetrated at this point.
Its single family has about 24 million units and that's a.
That's got a lot of upside.
It's not very penetrated at this point, a particularly in the value added services or I mean, there's they just it's just backwards and it needs a.
In each technology and then the last categories H. away, which we entered through the acquisition of click pay they had a.
A couple million couple million H. away units that they were selling payments through add turns out building them offers the other.
Half of the suite that H. always need which is all the management functionality.
And so were we now have a complete solution for HR way, we believe the.
ARPU potential opportunity in a choice about $100 unit.
And so that's how it breaks down but.
It's all mostly Greenfield if you if you look at.
Look at it from a dollar.
Perspective.
Okay.
And then a quick follow up I guess sticking with the into a market and quick pay.
Any material overlap.
There that we should be aware of.
In that space.
You mean would build them.
Yes.
Yep.
In terms of the user count what so building them brings on as a significant each way base as well it's a it's about.
So.
Five 700000 units coming in from build them and a in h. away that they can they get added on and.
I don't know if we solved for the full overlap on that up and perhaps the team has I think a lot of those are unique units as well, but what's what's most important is that the combination of those two as our makeup.
A very powerful platform that no no competitor has right the up the underlying property management plus the payments is a real pages, bringing as a first and then one platform of the Mark.
Okay, great. Thank you.
[noise]. Your next question comes from your next question comes from line of Stephen Sheldon with William Blair. Please proceed after your question.
Thanks, and congrats on the result on the momentum.
First wanted to ask about progress integrating different products like click pay medical bills, AI screening and to build the.
How complicated it that integration how long do you foresee that taking where you could start to see I guess strong uptick in it and attach rates for those products with and build the EMS exacting unit base.
In the Grand scheme of things, it's not that big a deal. It's we're building a p. guys now.
But essentially link all of those products.
And the good news about the products were linking in is there generally self provisioned already so they fit right into the building a model.
Click a button and turn it on.
So I think you're going to see.
You know beginning.
<unk>.
Literally in the by the end of this quarter, you'll start to see some of it and throughout the.
The year, you're going to see a.
See this move.
Pretty quickly.
I think we've already solar for simple bills deal into building them. So.
I. This is not that hard not that our Tuesday, and I will add though the way, we're making sure that we.
We ensure that we have a seamless customer experience on this and that's important I I know, we talked about last quarter I know I know you understand that part of what really differentiates build them as is how easy it is to use and how it just a seamless the customer or our customers experience. It. So we want to make sure that we have.
But engineered just watertight as we launch so you'll probably see US do this in a in a phased approach over the course here to ensure that that customer experience stays absolutely best in class.
Got it that's great.
And then clearly talk about taking building more up market relative to their current average unit count by client I got to do you also engage and taking that down market as well at some point to go after an even bigger unit opportunity. There I know there Mike we need to be a different go to market strategy, but you see that is an opportunity at some point.
Yes.
Well I don't see us going down to the the.
Owner of a single family home.
The at least not anytime soon I I think we really look at 20 units are more as the.
As a target market.
For building boom.
That may change.
But right now we need to focus on the low hanging fruit and.
I don't think that's at that extreme low end, yeah, right right now see and there's just so much opportunity to penetrate.
Above that that target market that ER, we we have farmer growth and we can handle by doing that but over the long run I'm. Obviously, we're building software, that's self configured and and and we'll be able to penetrate the full range of the market stop focus now.
Makes sense and one last one if I could have good to hear added ability and turn profitable any ballpark on what you've included for adjusted EBITDA for build them in 2020.
I don't know that I'll break it down in detail, but we are expecting some margin expansion from building the focus is on on growth.
And our single family business as we're bringing all these products to market together, but we will see them, we will see them expand comfortably.
Into the single digits of margin this year.
As a percentage.
Ladies and gentlemen that was our final question and this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
[music].