Q1 2020 Earnings Call
Greetings and welcome to the real page first quarter 2020 conference call. At this time, all participants are in listen only mode.
Question answer session will follow the formal presentation.
If he wants to acquire all Burger systems. During the conference. Please press star zero under telephone keypad. As a reminder, this conference is being recorded.
It's my pleasure to introduce your host Rhett Butler, Vice President Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon, and welcome to the real page financial results Conference call for the first quarter ended March 31st 2020 with me on the call today or Steve when our chairman and Chief Executive Officer.
And Tom Arnold, our Chief Financial Officer and Treasurer.
Mark today, and then in response to your questions. We may make statements that are considered forward looking within the meaning of federal securities laws.
Forward looking statements are based on managements current knowledge and expectations as of today and the date of this call and are subject to certain risks and uncertainties that could cause actual results to differ materially from those forward looking statements.
We may also use or discuss non-GAAP financial measures as defined by regulation G. Definitions of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measure are included in todays earnings press release.
More information on these topics. Please reference the section titled cautionary statement regarding forward looking statements and explanation of non-GAAP financial measures in todays earnings press release.
That I'll hand, the call over to Steve.
Thanks, Laura welcome everyone and thank you for joining us this evening.
What started ought to be a great quarter fell short in March by about $3 million and revenue relative to the trajectory of the first too much.
Notwithstanding the impact of Cobot 19, total revenue grew 18%.
271.
Excuse me 277.1 billion.
Adjusted EBITDA grew 10% to 71.5 million compared to last year within our range of guidance.
Operating cash flow, excluding changes in restricted cash relating to accounting changes.
Grew 22% to $67 million.
Well the cold 19 impact on Q1 was relatively small we are reducing our revenue outlook for 2020 by 3% to 5%.
Reduced revenue guidance is driven by lower expected bookings in the first half a year and slower leasing velocity impacting screening contact center and transactional spend related to turning units.
We expect these negative impacts will be offset to some extent by increased bookings and activations for products and services that facilitate virtual leasing living and payments.
We're reducing our full year adjusted EBITDA guidance by 5% to 7%.
Which is a larger percentage drop in revenue.
Well, we intend to adjust variable costs due to lower revenue and the realization of some productivity improvements, we do not expect to reduce product development or sales and marketing spend given our view that clients will have an increased lead for products and services that help them accelerate.
Their transition to more virtual operations.
Our adjusted guidance assumes that plant operations returned to normal state by the third quarter of this year.
We're already seeing signs of a recovery in the data and I'll share that with you in a minute.
Tom will provide more detail in context in his prepared remarks as well.
Real page has been instrumental in providing the industry near real time insights to reveal what was happening day by day as the economy shutdown and resident sheltered in their apartments in the last 45 days, we've conducted 13 webcast with over 10000 attendees.
Providing a vast amount of relevant information, including unique insights.
Geographic location and the asset class you can view these past webcast as well as register for future ones on our website.
We've been contributing data to the national multifamily housing council effort to monitor industrywide rent payment impacts as well as collecting additional data points of our own to look at coal that 19 effects throughout the rental formal from marketing to living.
Our two leasing to living.
Our clients were especially concerned about collection of rent payments.
Our repository of real time rent payment data gives us an accurate an immediate insight into the percentage of units paying rent.
Dependent the percentage of units paying rent went from 94.2% in April of 2019% to 91.1% in April 2020.
[noise], that's a 3.1% decline.
Some parts of the country.
Oh, good 19 hot spots in areas more sensitive to the declining hospitality industry.
Experience more pay.
Other areas like Texas, and the Rockies and Great Plain states were impacted by less than the national average.
So like anything that pertains to real estate location matters.
We anticipate the percentage of units paying rent in may could drop further given the increase in unemployment.
When you should be able to follow that on our website or on industry web sites like NMHC and a.
We also included slides in our IR deck that focus on data relating to changes in them.
Multifamily leasing environment.
The percentage change in web site traffic dropped 20% by March 25th.
It has returned to a positive 10% to 15% range by the end of April.
So residents are still looking for apartments.
New lease executions were up 2% at the end of February, but bottomed out at 40% year over year decline by the end of March.
But then rebounded almost too even to last year by the end of April this is a very positive side.
Renewal percentages were flat at the end of February but within about two weeks jumped up by over 20%.
While these numbers are bouncing around we're seeing overall that while new leases dip in mid March increased renewal leases are offsetting a lot of the decline in overall leasing activity.
In addition, in addition to providing industry data in real time, our data teams responded to our clients and quickly prioritize projects to include more delinquency metrics in our business intelligence and performance analytics solutions.
As a result.
Going into the May rent cycle, we've added in a range of dashboards and metrics, allowing our clients to monitor daily weekly and monthly rent payment and the Lynn.
Delinquency trends.
This effort was on top of there already full roadmaps roadmap, which included delivering more affordable housing and accounting insights into be a in the last quarter I'm very proud of our teams response to the unexpected in highly fluid events, that's sort of played out over the last 45 days.
In addition to the great work of data Science, we responded strongly to our clients and we did it without suffering any best business disruption internally.
Operationally, we were able to transition over 98% of our employees to work from home in a matter of two and a half weeks.
In anticipation of possible loss of labor due to shelter in place orders in specific regions. We spun up for temporary labor centers with 180 workers in case, we needed to transfer work from locations that were temporarily placed out of service.
Our global workforce balancing systems dynamically move work between 27 locations around the globe.
We geared up our contact centers and electronic payment systems to accept unprecedented increases in volume.
Since most of our clients, we're no longer staffing their leasing offices.
Tom will discuss the implications of these increased expenses, but they were insurance that our service levels did not decline during the pandemic.
Cobot 19 has had an impact on the way, we think about the business going forward.
First we lost initiatives to improve work from home productivity.
We're exploring extremely pleased with our success here since we've been able to maintain service levels with over 98% of our employees working at home.
As cobot 19 began to impact our business, we adjust our adjusted our labor cost to maintain profit margins.
We intend to do intend to continue programs to drive productivity improvement and have elevated productivity to one of our seven core imperatives for the future.
One example of this is a new AI chat bought that we announced yesterday and we developed and deployed to help reduce call center chat activity, which is part of our contact center Threed auto solution.
Our clients who are using it are delighted because we are the only a chat service in the market that augment our chat functionality with access to live agents, if the resident or prospect ever wants to pivot the chat to a real person.
This solution helps clients, who understand that not all chats can be pre programmed and it helps realpage improved productivity and allows us to be more price competitive while maintaining margins.
We're not the only when thinking about productivity our clients have come to the stark reality that there are times they need to operate their properties with no. One in the leasing office. The current crisis has proven that the virtual leasing office is possible. We're prospects can visit the property online scheduling tool.
Or walk the unit and see amenities with a live agent on video conference and then lease online.
Realpage intends to facilitate every aspect of this virtual prospect Journal journey.
There was already a trend in our industry to move more and more work.
All the site and reduce dependency on site staff.
In the past residents would drop off their rent check at the leaving leasing office.
When the pandemic if there was no one of the leasing office. So residents had to go online.
Online payment transactions volumes have jumped more than 20% in the last 45 days, replacing paper checks.
And most astounding usage of our online resident portal jumped 75% from the beginning of March to the beginning of May.
We literally help millions of resonance migrate to virtual living in a matter of a few weeks.
We continue to see high value from our Quickpay acquisition in 2018, particularly in this challenging time.
Click place serves a broad range of customers in multifamily single family and H. away markets and is focused on helping New York based owners and managers with virtual solutions.
Quick pace payment services are now integrated into our virtual leasing and living solutions on top of third party property management systems, and our helping our clients whether this form.
We also continue to see more and more HIV AIDS sales from click pay further proving out our belief in the viability of these markets for real page.
The current prices also made it cleared our industry that state and local government intervention is going to disrupt normal imbalances in supply and demand that drive rents in an open market place.
While you might think government actions would limit the effectiveness of revenue management, just the opposite it's true.
We announced a revenue management in Q1, which optimizes demand credit lease terms and leasing agent behavior by floor plan type.
And it happens to work best when volatility is high.
Using our benchmarking database, we compared units that are revenue manage against the broader peer group in each submarket that they compete with for the months of March and April.
We were pleased that the revenue management engine produced 60 basis points and incremental price yield on new leases and 80% basis points of incremental price yield on renewal leases compared to the peer group.
Perhaps the greatest surprise of all was that our revenue management sites increased their renewal percentage by a full 100 basis points more than their sub market peers, who were not using revenue management.
James split head of ratable revenue management at Camden property Trust shared this.
As a long time leader in leveraging technology to drive performance, we know the importance of getting it right all the time.
Camden is relying heavily on real page revenue management systems analytics and their teams of advisors to identify opportunities to preserve and NOI and drive revenue in these difficult times.
Overall, we're very pleased that operators seem calm in the face of this crisis and owners like Camden are letting science Trump motion to optimize revenue.
Another effect highlighted by the current crisis as the importance of increased retention.
If an owner can keep a resident in their current apartment.
Or in a network of other apartments that they owner manage this is one less new rent or that they have to find.
Retention rates have been increasing steadily for the past 10 years and now hover around 53%.
This number can go up if you employ loyalty and report rewards programs like those offered by modern message a company that Realpage acquired earlier this year and we are integrating modern message into our resident portal solution active building.
Also modern medicines helped properties improve their online reputation because we are now the largest destination that renters look to for online reviews other than Google to quote one of our clients our data.
Showing that top ranked properties with the highest online reputation need half as much from traffic to close leads when compared to our lowest performing properties.
Modern message generates on average over 160 reviews per property and we now support over a million reviews.
We're also seeing increasing concern about the amount in timeless timeliness of rent payment.
This doesn't just apply to residents that are struggling to make their rent payment because they've lost their job for cobot 19 related reason.
It also applies to all renters never has it been more important than now for screening algorithms to measure a residents willingness to pay not just their ability to pay and discern this information without relying on eviction databases.
Hi, screening, which we released yet last year is our innovative screening tool that addresses willingness to pay and we're receiving accolades from owners, who are achieving lower default rates with this tool.
For example, Courtney ballasts at JV M. Realty, Corp. said Theres no bigger test of AI screenings ability to help predict a renters willingness to prioritize their rent obligation over others on a global pandemic, while we were unsure of what.
What to expect during an uncertain situation. We ended April at a much improved 1.7% delinquency for the portfolio with a screening in place.
As a quick update our acquisition integration efforts.
We've been working feverishly to unlock Realpage and celery services that can be offered to the building customer base. As you may recall building them was acquired by real page in December of last year and expanded our market share in the Underpenetrated SMB segment of the market.
Since the acquisition, we've integrated simple bills are utility billing solution for single family housing and have launch this differentiated services service in both the property where and building install base.
In addition, we will be filling a hole in the building in product offering.
Lease lab web sites to building them customers.
We are vastly expanding the insurance offering available to billing clients and will soon be offering a low end version of our IR mass platform for building them clients, who need systems to manager manage investor reporting.
As a reminder, we acquired building room to expand our presence in the Underpenetrated SMB market.
Building them revenue jumped a whopping 35% in the first quarter.
And our total SMB annual contract value is now nearly $385 million.
We believe realpages largest provider of SaaS software for the SMB rental housing market.
We intend to up our investment in SMB, and we'll be announcing new innovation over the next few months to further differentiate ourselves most important realpage, we'll be releasing apiay ties into our SMB platform. So that third parties can integrate with us.
Both Yardi Breeze, and App folio, our clothes platforms, which in our views stifles industry innovation.
At Realpage, we believe platform should be open so that third party innovators can complement our platform.
While cobot 19 has had a short term negative impact on real page that will continue through the rest of this year we believe.
Pandemic has shocked our industry in two accelerating the move from paper to virtual operating environments, a move that bodes well for our long term future.
Thanks for joining us today with that I'll turn the call over to Tom.
Thanks, Steve and good afternoon, everyone.
I also could not be proud of the Realpage teams response over the last two months the team swiftly adapted the change in work environment, while also adapting to support our customers changing needs, enabling them to make their community safe for their residents that employees, while mitigating the financial challenges of unemployment and social distancing on their properties.
Yes.
We provide an essential service to our customers, which Dave will rely upon us to deliver.
We did deliver and we remain seriously committed to doing so.
On behalf of real Peyton its customers to team Realpage I would like to give a very big public. Thank you.
We believe realpages very well positioned to deliver on this commitment we are well capitalized have strong cash flow and a proven recurring business model that allows us to continue to invest in and drive the innovation that our customers need and the growth that provides shareholder value.
As Steve mentioned normal seasonal leasing activity that starts ramping in March and runs through the fall was significantly depressed in march compared to prior years.
Even when compared to the seasonally low winter months of 2019, and the beginning of 2020.
While our subscription business model is largely unaffected by these trends, we do have some sensitivity to activity driven seasonality.
This can be observed in the normal seasonal pattern or revenue has historically, followed with the second and third quarter as being our strongest for quarter on quarter growth and the first and fourth quarter is typically showing less sequential growth.
Moving on to the quarter first quarter financial performance was solid despite the macroeconomic backdrop.
Total revenue grew 18% year over year, which included 10% growth on an organic basis.
We were on track with our internal budget and the high end of the revenue guidance range at the end of February.
The slowdown in revenue driven by leasing activity along with a slowdown in new project Activations were primarily responsible for revenue performance near the low end of our guidance range for the full quarter.
Our earnings and cash flow performance was strong adjusted EBITDA of 71.5 million grew nearly 10% and we generated 67 million of operating cash.
While we do not anticipate reporting this type of data on a continuing basis, we thought that additional disclosure on building on would be helpful. In the first full quarter as part of real page.
Build them contributed over 16 million of revenue during the quarter growing over 35% year over year with significant adjusted EBITDA margin expansion on a standalone basis.
Total real page, a CD growth was 19%, 19% compared to the prior year.
Testing of 16% New unit growth and 3% revenue per unit growth.
We ended the quarter, an 18.9 million units consisting of nearly 10 million multifamily units from owners and managers with over 5000 units and over 9 million SMB.
Total bookings production experienced a strong start to the year. However March did see a significant slowdown.
We are seeing strong, but early signs of improvement as the second quarter is proceeding.
Total sales team members at the end of the quarter or 576, representing 22% growth compared to the prior year quarter.
We expect to invest modestly here under the current climate and continue to focus on productivity.
From a profitability perspective in Q1, adjusted EBITDA margins contracted by nearly 200 basis points to 26% compared to the prior year period.
Lower adjusted EBITDA margins were driven by gross margin investments and growth initiatives, including acquisitions and by continued salesforce investments and general and administrative investments in infrastructure.
Looking at the drivers in more detail product development cost as a percentage of revenue decreased nearly 100 basis points year over year and continues to be driven primarily by our efficiency initiatives implemented in early 2019 that enable us to allocate more resources towards innovation projects, while optimizing maintenance projects.
Sales and marketing cost as a percentage of revenue increased 60 basis points year over year and was driven primarily by increases in our Salesforce, which grew by over 100 total reps.
Our primary area of investment we're in the SMB business and lead generation capacity as we begin to pivot during the cold 19 crisis.
General administrative cost as a percentage of revenue increased 150 basis points year over year and was driven primarily by incremental acquisition costs and infrastructure investments to drive efficiency and scale over the long term.
As a result, we expect strong DNA leverage as we exit 2020, and as we move into 2021.
During the quarter, we generated nearly 67 million of operating cash excluding the impact from changes in restricted cash related to accounting treatment changes.
Our leverage ratio is now 3.3 times. This is comfortably within the two to four times range. We believe is optimal operationally.
As we turn to our outlook for the second quarter on the year, we take confidence in the essential nature of the support we provide for our customers business and our performance thus far in the challenging environment.
This combined with the intrinsic visibility of our SaaS model to enable continual execution of our growth plan, albeit with a wider uncertainty cone around how the macro scenarios unfold.
Before turning to guidance I'd like to frame the scenario as we contemplated and establishing the high end of the range. We assumed that we would see over the remainder of the second quarter and your continued ramp up in a return to work levels leasing activity loss levels and our customers willingness to engage new projects.
In addition, the high end assumes that we will see a bit of a catch up leasing ACO season in the second half of the year.
At the loan to the range, we assumed little recover recovery in either leasing activity or client engagement of new initiatives for the duration of 2020.
On the activity levels that we saw in March and April.
While this may seem like a harsh planning assumption given the nature of the unique macro potentiality as we thought it prudent to include that scenario at the low end of our guidance.
Accordingly, our outlook for 2020 years for the second quarter, we expect non-GAAP revenue of 276 million to 280 million.
Which represents growth of 13% to 15%, including 5% to 6% organic growth.
Adjusted EBITDA is expected to be 66 million to 70 million, which represents margins of 24% to 25%.
Our second quarter adjusted EBITDA is expected to be impacted by over 3 million of spend that we incurred to ensure not only the we're ready to respond to during the covert 19, but also that we went above and beyond for our customers, including establishing the temporary labor centers and investing in the product and marketing initiatives that Steve mentioned in his.
Comments.
The need for spend in these areas has plateaued in the second quarter, and we expect margins to expand as the year progresses.
Non-GAAP diluted earnings per share as expected to be 38 cents to 42 sites.
For the full year, we expect non-GAAP revenue to grow between 13, and 17%, including 5% to 9% growth on an organic basis.
This represents revenue of.
1.115 billion to 1.155 billion.
Adjusted EBITDA is expected to be 290 to 300 million or 26% of revenue representing a reduction of 150 basis points of margin versus our previous guidance.
While we intend to adjust variable costs due to lower revenue and the realization of some productivity improvements, we do not expect to reduce product development or sales and marketing spend given our view that clients will have an increased need for products and services that help them accelerate their transition to more virtual operations.
Non-GAAP diluted earnings per share is expected to be a $1.74 to $1.84.
In summary, we believe we're on solid financial footing and have a strategy to weather the storm during the current macroeconomic backdrop, we're in a central service to our customers and we remain fiercely committed to supporting our customers and we are proud of our performance today through this unprecedented challenge.
Lastly, due primarily to decode the banking crisis, we are moving our analyst day to a virtual event in the first half half of August.
Holding the analyst day, a couple of weeks after real world, we will be able to benefit by packaging together some of the content from the customer event for investors.
This concludes our prepared comments operator lets open for questions. Please.
Certainly we now becoming ducking. Your question answer session. If you like you placed in the question Q. Please press star 100 telephone keypad, a confirmation tone will indicate your line is in the question Q.
May prestart too if you'd like to remove your question from the Q.
For participants using speaker equipment, maybe necessary to pick up your handset before pressing star one one moment. Please what we pull for questions. Our first question today is coming from John Campbell from Stephens. Your line is now live.
Hey, guys good afternoon.
Hi, John John Hey, So just wanted to touch on the leasing the less leasing activity can expectation you guys called out.
Hi, guys. If I missed this but can you talk how long do you think runner turnover state muted and then Steve if you could maybe touch on kind of any commentary that you guys. There may be hearing around forbearance and whether property managers are you being creative with lease turns and trying to lock.
Renters into longer term contracts.
Well, we were pleasantly surprised that the.
Rent collections dropped only 3% in April.
Given the.
Livable shutdown.
Amount of unemployment, we anticipated that would be.
Higher.
Leasing activity.
Collapsed.
Right right around the time more Tom Hanks announced he had.
Totaled 19.
But it fairly quickly came back it was only down for.
Three or four weeks and we began to see a trend back up and we we have a slide in our IR deck that shows that.
Probably the.
Most.
Encouraging event was everybody that had planned to move rescinded there.
Notice to vacate and stayed put and so we saw jump in renewal rates, which helped mitigate the.
Reduction in new leases so.
Hello.
Things.
You went in and expecting the worse than that I think what we've seen is.
It is quite.
Quite encouraging.
This is not over course so.
Predict where it's going to go but right now.
We are returning to normal.
Yeah, John I'd encourage you take a look at the investor deck, we put some some slides from our dashboards and the deck that we typically don't put in that we thought might be helpful around.
Overall leasing activity across the same store analysis, and our and our customer base along with website traffic data from our customer base as well. So you can see kind of the data is we're seeing in a really is a striking the.
That who knows what what may brings but it's been an encouraging ramp off the bottom.
Okay. That's helpful and then Tom I don't know how much no additional detail you can give on that but Don I would give it a shot.
On that on the transactional revenue I mean, obviously 10, 11% of revenues now.
Could you talk to what that mix looks like I don't know if you go down to the product type or maybe just dump the segment level like where that's kind of falling on a segment basis.
Well we have.
Within our subscription business we have.
Components of multiple of our product that actually give metered based on underlying transactional activity at the property.
Screening software as one example of that where its majority subscription, but there are as a component that's based on the activity levels.
Similar with the with our payments business so across across multiple of our businesses. There are some metering transactional basis. This is entirely in the driver you are seeing behind.
And you can see in the data that we showed on the on the overall leasing activity where at the end of March we were actually seen the percent changes in new leases across the 6600 communities. The same store analysis shows it was down over 40% right. So that's the sensitivity that drove us to report towards the low.
End of our guidance range, rather than the high end in the quarter to give you a sense.
Okay Thats helpful. Thanks, guys.
Thank you next question is coming from Pat Walravens from JMP Group Your line is alive.
Great. Thanks, very much I talk.
A little bit about the payments business, so resident services with 119 million.
And so my question is or how much of that is payments and what are the puts and takes in payments for you guys. Now I mean, if people don't pay their rent I assume.
You lose the transaction fee, but then on the other end.
And people don't want to write checks as much as they you still in Hamburg check to someone so maybe you're seeing more activity. There just love to hear your thoughts on that.
Well payments are way up of overall.
Because everybody went online.
You couldn't take a paper check to the leasing office so.
You had to go online.
So the mix of payments has changed with the actual transactional volume is not materially different it's up because our business is growing.
And Steve about 119 million resident services, how much as payment.
So Pat we don't break it up a payments is the largest in in the resident service line, our largest our payments our utility management.
And renters insurance businesses.
Okay being the largest.
And then when you talk about payments it seems like you reference New York.
What.
Different about the click based solution for New York versus the rest in country and Thats something that evolve.
A quick pay was strong in New York and Realpage was not.
The.
We mentioned that because we've had so much success with click.
The.
New York happens to be their largest market.
You have to pay rent New York like anywhere else. So.
Now we're seeing the same trend in the click pay New York businesses, where in the overall payments business as Steve alluded to where it's where you're seeing more online. So it's it's performing well.
Okay, Great and then last one from me on this subject so 3%.
Rent collection payments recollection drop in April what do you guys expecting for May and June.
Or what do you modeling.
It's it's early clearly.
Our expectation is it will probably be slightly lower.
Im not expecting too big.
Shift down one so.
Great. Thanks very much.
Thanks Pat.
Thank you next question today is coming from Ryan Tomasello from KBW. Your line is now live.
Good evening, everyone hope, everyone is doing well and nice to speak with all of you just wanted to drill down a bit more into the major assumptions on the revised.
2020 guide.
Tom can you quantify how much of the 300 to 500 basis point revenue growth production, specifically relates to these more temporary transactional headwinds from things like screening leasing and turnover volumes and then similarly.
How much of that relates to delays in new project activation and lower bookings levels from clients.
Sure absolutely right. So as we plan to the scenario those are definitely the two biggest factors and the roughly equal and magnitude.
At the midpoint of our planning assumptions.
Did that is the headwind but from.
New project, both bookings and activation levels versus the the leasing activity driven.
Okay got it Thats helpful. And then just regarding the the M&A landscape are you seeing an increase in volumes of unsolicited inbound there and if so what approach are you taking the underwriting in this new environment do you have appetite to consummate.
M&A at these leverage levels and specifically what areas in the market might interest you into kind of present, the most value assuming we start to see more distress among the smaller.
Players in that landscape there.
They are clearly is a.
Heightened.
M&A control.
In almost all areas.
Over 100 companies that are competing.
One place or another real page.
On a lot of creative innovation is happening with many of these companies.
I think prices will come down.
Just because of.
The environments not as strong refused to be.
Realpages stool.
Tends to be active in evaluating.
As many of these opportunities as we as we can.
Pick those that are most complimentary and have the most leverage on our business model.
Yes, we're seeing a range to as we look at some ancillary spaces. There clearly some that are under more more stress where.
Basis have already started to come down.
Such as in the short term rentals market or or the.
Pockets like that as we think about leverage so we're at we're at 3.3 levers that I mentioned my prepared remarks, Ryan that's comfortably in the two to four range that we think is.
Is optimal for us.
No we do recognize two in an uncertain environment than we were probably a little less hesitant to.
Go to the high levels that our credit facility allows us to which is which would be a five times leverage or even an accordion up to five and a half times.
But we do want to be smart and environment as always and if if if there are attractive areas that can help contribute to our innovation.
We will will take a closer look, but we will definitely be prudent with.
With thinking about high levels of leverage and uncertain environment.
Great. Thanks.
Thank goodness question is coming from Stephen Sheldon from William Blair. Your line is now a lot.
Hi, guys, Thanks, and really appreciate the data on daily visitors and leasing activity.
Wanted to ask about bookings activity, so far in 2020 by product category.
There are anywhere that been notably above average or below average byproduct and I'm just wanting to gauge.
Maybe more recently what types of products clients are focused on in this environment, and maybe where they're not willing to make decisions yet or pushing out activation.
Well you see of a lot of interest in.
Virtual leasing living and payments.
I think this industry was trending.
Slowly.
Towards.
Moving to go virtual but it was going to take five or 10 years to get there what's happened in the last two months is going to accelerate that.
In a massive way.
I think all operators will.
We'll demand.
Fully virtual platforms that allow them to.
Originate demand capture demand close demand do online.
Tours screen.
And even deliver the the.
Code to the Smartblock that opens the apartment for them.
So so thats. The this is development. The so we've been working on for some time and feel like we.
Oh.
We want to even accelerate some development that's been going on in that area. Another mega trend in our view.
Has to do with.
Residents that are now going to work more at home.
So those apartment owners and operators that can deliver the most convenient.
Work and living experience at the apartment will be the winners in the future and so many of the.
Portal tools that we offer are going to become more and more important and the.
Right.
That said in my remarks, we saw 75% increase in.
In the usage of our resident portal. So I don't think thats going to change I think the residents are hooked on it and they're going to stay with it so.
So.
Thanks, Stephen I'll add to that too that the team here made a rapid shift to to put together packages and campaigns to drive some of that shifted that Steve talking about and were successful in moving about 15% of the pipeline to these these.
Of virtual lending leasing and.
And payments.
So that that was quite successful and resulted in significant deals as well, but as we looked at the results and I comment in my results. How we did see a significant impacted depressing impact of bookings.
And particularly in late March we have seen early signs of recovery in that and as as the teams looked at where we're driving bookings is actually pretty broad based so we're seeing I'll.
Big number of mid sized deals as we look at the pipeline there across the range of what we do including some areas you might expect would be even more deeply impacted such as student.
Coming in late in April so.
Overall, it's a it's an encouraging kind of broad based recovery, albeit it's definitely lower levels and we had planned pre coated.
Got it that's helpful. I guess I guess the weaker booking in late March with that concentrated in any specific product category.
No everybody literally hunker down too.
Hello survive there with the there was a freeze up [laughter].
With one exception and that is anything that could do get payments.
From paper to electronic they bought instantly.
Got it.
One more if I could just wanted to ask about the risks to implementations in this environment from in person restrictions I know you're working at a made progress that simplify processes and allow for more self provisioning in it could it be meaningful headwind to what revenue streams could be implemented income this year.
I don't think so we've we had an exceptionally good.
[music].
Quarter.
On the on implementations and we were concerned when we went to work at home that productivity would decline, but in fact, we we manage that tightly and.
We're very.
Very pleased with the performance of our team, we didnt have any service level problems.
At all and.
And it was all 98% of it was being done work at home.
We're also load balancing work around the world. So if we had a location in say the Philippines.
Was down for a couple of days, we could ship that work to India or for the U.S.
And our customers never saw it so.
I don't see this environment being gated by.
Having any any implications to our ability to accelerate implement implementations and continue to work some of our people.
At home.
I don't think we're going to bring everybody back.
For a long time.
Makes sense given the numbers even.
Looking at the numbers the implementation that did track roughly what.
What happened with our bookings and so we had.
A pickup a momentum, particularly as we look at April progressed, so that we ended up.
With.
With effectively not producing new backlog they roughly tracked.
Got it thank you.
Thank you. My next question is coming from Peter Heckmann from D.A. Davidson. Your line is now lie.
Hi, guys. This is elecsys on therapy today. Thanks for taking my question I just wanted to ask your questions about customer behavior.
Sounds like you have 9 million SMB and I'm wondering you can see major difference in behavior on the part of your relatively smaller versus larger clients and kind of inline with bad weather not any customers have requested pricing concessions or waivers from monthly payment.
We've actually had very strong collections were our dsos better today than it is been last three years as or better best yes on three years this quarter.
I mean, we're on top of that we are an essential service.
So you know is one part of the.
Customer base in more pain than another it turns out that class C apartments.
Which are the lower end of the multifamily space.
Actually suffered less decline than a and b.
So.
It's not clear the.
SMB is going to be more impact, we're just not saying that.
Okay. That's really helpful. I definitely appreciate all the incremental data.
So.
The company be considered in most cases, a critical vendor that would continue to be paid in the event chapter 11 bankruptcy filing on the part other property management firm.
You can't really operate an apartment.
Today without all of the online systems that.
Realpage offer so I can't.
The most situation were an operator, we're just turn turn off the system and go to.
Spreadsheets and.
Paper checks for everybody that just.
I think we are in the central service in the.
I think realpage would be the one of the last to cut.
Yes, so far enough fair enough.
Just one last line.
Right.
Im pleased to human volume.
Wondering about the relationship between.
Downtick in new leases.
Part how.
Being kind of screening volumes.
Screening was down particularly in the.
Mid March through through mid April was it was it was down a lot. It tracks. If you looked at the slide that showed new new leases.
Screening will track that.
So it was down but it's recovered it's come back to.
No.
The cobot levels at this point.
Although we are watching that closely so that is the most recent data but.
As outlined in our planning assumptions, we kind of we don't assume that.
We don't assume in the scenarios that we have year on year growth and and screen say for the high end of the range.
Okay. That's good now thank you.
Thank you as a reminder, that star one to be placed into question Q. Our next question is coming from Joe Vruwink from Baird. Your line is now live.
Great Hi, everyone.
I'm wondering if you can talk I think it's $27 million reduction and EBITDA midpoint to midpoint.
How much of that is being prioritize to may be the strategic leaning and on some of these categories that might actually be kind of category winners longer term and then how do you think about the ROI on that investment that take place this year.
This is for your guidance yet for your guys right.
Yes. The revenue reduction is of course, what's driving most of that.
27 million, what we did not do was put our product development sales and marketing budgets. So.
Had we declined those at this at the 3% to 5%.
Than EBITDA would attract.
But we really feel like we need to keep keep those.
Those dollars in play.
Hello.
It's too much opportunity.
Crisis is always followed by rebirth.
And.
This.
She is going to be a new world.
As our industry ships from.
Paper to virtual and we want to be at the forefront of that shift.
Really drive that shifted as much as possible.
So.
Don't show weakness.
Moment, and and also Joel I mean, that's top priority. We're also remaining invested in the SMB strategy, though that we outlined for you and when we.
Acquired build Anna we spoke last quarter. So we're we're continuing to higher there.
Significant investment they're growing strongly.
They grew 35% in their first four quarters, that's up from the 32% they were growing when we acquired them. So look for us to continue to remain invested on that.
We've talked about a number of other initiatives that.
Are we didn't detail on this quarter, but we previously talked about that we continue to invest and from a product development standpoint, and go to market standpoint.
Great I guess, it's Steve that rebirth is what I'm interested and.
You talk about.
Five to 10 year trend.
Structurally changing up within a matter of a couple months just thinking about online leasing practices would be one but when you think about that on all dang I'm not saying add helps 2020, but as you look into 21 2022.
Maybe relative to an organic growth rate that was already expected to be kind of low teens.
Do you think that gets priced higher by some of them out do you have any idea what that amount might you.
Well, we're we're still committed to our 2022 goal of a billion five in revenue.
$500 million of adjusted EBITDA on a run rate basis.
If we get more clarity on on the.
How these investments are going to perform when we may change that guidance, but we're not backing off of that long term objective.
As a result cobot is not changing that.
[music].
But I don't think we're in a position at this point to raise it.
Okay fair enough. Thank you everyone.
Thanks, Joe.
Your next question is coming from Jason three though from Keybanc capital markets. Your line is no life.
Hey, guys. Thanks fitting me in a lot of uncertainty in the rental markets has been around this fear of tenant unable to pay.
April payments, you can say with better than here, we still need to see may and June, but let's say it also come now that better that beard.
You think the customer propensity in their budgets come back work do you think owners will still be conservative.
I think owners are going to buy.
Technology the improves their bottom line.
And going virtual will drive efficiencies for this industry notwithstanding.
You know, 3% to 5% movement on collections from their residents are going to spend the money because the returns or so fast and and.
And so real and they know it works now.
Nobody.
There were few operators that have figured out going virtual was.
Was going to happen and we're actually orchestrating that shift but.
This this last two months as proven it works.
And I think.
[music].
The technology that will drive.
Virtual living and working in an apartment is going to be.
Huge.
And there are lot of.
Derivative products and services will fall out of that.
So.
No I'm bullish I mean, I do think theres going to be a rebirth.
On a change in the way our industry.
Operates and I think technology is going to become more importantly industry spends about 1% of its revenue on technology today Realpage has about 17% of.
6 billion dollar technology spend excluding telkom.
And I'm, absolutely convinced because we can show the the economics that the industry will grow that and we're hoping that grow.
Over the next five years to at least one of the half percent.
Spend on technology, which would be $10 billion and.
The real pages.
More helpful, then the competitors and helping them.
Get there we would hope our market share would would grow above 17% of the overall pie.
Okay, great. None that's actually pretty helpful. I guess, one more if I could fit it in the slowdown in leasing velocity that you anticipate do you think that it'll be different for maybe a single family property versus the multifamily property or where would it be.
Same.
We haven't seen a difference.
Oh, I mean, everybody hunker down.
Again, it's early in this rebound so.
There may be a differential but at this point, we don't see it.
Okay, Great. That's all for me thanks.
Thanks Jay.
Thank you. My next question is coming from Sterling Auty from Jpmorgan. Your line is now line.
Great. Thank you Mrs. Jackson Ader on for Sterling Tonight, a couple of questions from our side. The first is.
Could we maybe just talk about the balance between net new logo addition, being being delayed in terms of their bookings deals versus maybe existing customers that are working too.
That realpages looking to cross sell and they have delayed maybe better decision making.
I think we saw an impact in both I mean that the environment that the the kinds of calls we are getting from customers was what it was new or add on deals or even things were already in backlog the calls for the same.
I'm excited about this real page, but I'm dealing with an emergency right now call me back in a couple of weeks. Please so it was across both.
Okay, so nothing necessarily to call out.
One way more impacted than the other.
I don't think so hang up now it's still early but as we've looked at what we are booking postponement.
As I mentioned, we're seeing a pretty nice mix of not only new an add on but it's across the product set as well obviously it. It has it has shifted as Steve has highlighted to the to the virtual.
Living leasing and payments that's been the big shift to call out otherwise, it's fairly broad based.
Okay.
And then Steve a follow up for you.
How do you maybe and customer consolidation.
Would you view that as a net positive net negative or neutral to realpage and how you handle that.
So there's been some consolidation in this industry, but not a lot.
I remember when we came into this industry equity residential I think at 200000 units.
And the there's only.
Couple.
Owner operators that have more than 200020 years later.
So it's remained a fragmented industry.
Uh huh.
And.
There's nothing that would suggest to.
You're going to be massive.
You know increases in the size of one or two.
Hello.
Owner operators on a great stores at this point is the largest there.
Four or 500000 units.
Out of 65 million.
Okay. Thank you.
Thanks Jackson.
Thanks next question is a follow up from John Campbell from Stephens. Your line is now live.
Hey, guys. Thanks, one quick follow up here I wanted to touch on the payments business again.
You know resident direct I know is a very very small piece of that business, but it seems like it would make sense, maybe for some folks to load a little bit around maybe near term on the credit card is that are you seeing a mix shift at all there.
We've seen some shift.
Two more credit card.
And we've had some owners that have agreed to pay for the.
Fee on it.
Yeah.
To help the residents.
[music].
But it's still credit cards are pretty small percentage of the total number.
Number of transactions that we process.
But it has gone up a little bit in the last two months, yeah, I wouldn't characterize it as small as I think it's been quite successful it as it has a very small part of the overall count, but it's been a successful product for us.
Yeah resident direct to is important.
It's not small relative to client directors client direct were those were the client base weren't resident direct where the resident in place for resident direct is clearly the trend at the industry's moving too.
Thank you we reach of our question and answer session and ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.