Q2 2020 RealPage Inc Earnings Call
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I see operate as anybody there.
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Hello shoppers ever there.
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David David Brown.
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Likewise supporting property should do better than their urban core counterparts.
An important progress underlying our macroeconomic prediction is some level of federal support for those who have lost their jobs, keeping unemployment benefits above the levels offered by individual stage.
These enhanced unemployment benefits should kept rent payments at professionally managed properties close to normal levels.
Both sides of the R.L. support a continuation of the unemployment stimulus, but are debating on how much.
Well, we expect the market can absorb some reduction in supplemental unemployment incentives, we would encourage car Congress should reduce the stimulus in steps that can be more easily absorbed.
A large decrease in unemployment stimulus might trigger a corresponding decrease in red collections, which we do believe would have a negative ripple effect on the economy.
Next I'll discuss our virtual leasing them living vision for the future.
Cobot 19 has impacted how we think apartments are going to function in the future.
We are maintaining our level of investment in product development in order to accelerate enhanced functionality that enables apartment operators to lease apartments more efficiently without leasing that events agents having to be physically present in the office. We believe we can eliminate most onsite work.
So that a fewer number of leasing agents can work for from home and be more effective than they were pretty cove. It.
One example of our investment in virtual leasing is a new AI chat bought that we announced last quarter.
And that has since been adopted on thousands of units to reduce the time that agents must spend on the phone.
They are in this case stands for augment it intelligence, which means that the bought handles most chats with very sophisticated interactive responses to almost any question.
But the but also incorporates true AI technology to learn and adjust its responses, which we believe distinguish it from it from others on the market today.
Of course, the prospect can always connect to a live agent in our contact center.
And this transfer is warm meaning no delays.
What our agent does come into the call. They are giving given context because in the background. We have been building an expanded gas cards. So the prospect doesn't have to start all over which we all know can be a frustrating experience.
Our data shows that a chat bought like our supplemented with live agents.
Warm transfer converts significantly higher than competitive chat services on the market today.
Hey side benefit of the AI chat bought is the.
Price operators pay for Chad is dropping 30% compared to live agent chats alone.
We're also testing and they I boy spot now and expect to release. This later in the year.
We expect this will allow our contact center.
We expect that this will allow our contact center supplemented with augment it intelligence to convert much better than competing boy spots on the market today.
Both our AI chat bots and AI voice spots are tightly integrated with our CRM. So appointments can be set an integrated immediately for leasing agents to take over.
[noise] realpages already providing technology that enables online tours by leasing agents that are working from home.
We are investing heavily to improve this experience and increase conversion percentage well above what is possible from leasing agents in the office candidly, we believe virtual leasing is going to get better than in the house or in office leasing and can be executed at a much lower cost to operators.
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We will be showcasing many new virtual leasing tool to world tools at our virtual real World user conference on September 14th and 15th.
There was already a trend in our industry to move more and more work off site and reduced dependency on site staff.
In the past residents would drop off their rent checks at the leasing office when the pandemic hit there was no one in the leasing office. So residents had to go online.
Earlier in the quarter, we announced lockbox processing for our clients. So they can eliminate the need to scan paper checks in the office and more important someone in the office is not needed to feed paper checks through a scanner.
We adopted this capabilities from our click pay team and applied it across all payment processing platforms that real page.
We're the only payment processor in the market today that can offer a truly payment lists platform for on site personnel.
Earlier in the we also introduced a new online vendor payments product to eliminate the need for any vendor checks to be written in the office.
While virtual leasing is extremely important to us we believe the industry's greatest opportunity to generate incremental yield comes from online virtual living.
[noise] usage of our resident portals was way up in Q2 as residents demanded in their apartments for some of the same convenience is that they enjoyed at work.
We helped literally millions of residents migrate to virtual living in a matter of a few weeks.
Most owners monetize less than 5% of their total rental revenue from amenities. The rest is base rent.
Brent controls are becoming more prevalent around the country and it is apparent that owners will struggle to raise base rents in this new environment of high unemployment and greater governmental restrictions on rent increases.
Residents want more convenience is at the place of living because they're spending more time there.
We believe that our industry can unlock significant incremental yield simply by offering residents something that they already want to buy.
Monetization of amenities as an area of significant investment by real page and we'd expect to rollout technology that makes this possible again, we invite you to attend our real world Virtual user conference on September 14th and 15th to learn more about this opportunity.
Finally, I'd like to give an update on our SMB strategy and the success, we're achieving here.
As you will recall this category includes smaller multifamily single family Association and vacation rental operators during the second quarter of 2020, the SMB category represented nearly $424 million of HCV 9 million units.
And an ARPU of over $47.
This represents year over year growth of 35%, 26% and 7% respectively.
It is important to note that not only is our unit presence growing but we are also having great success cross selling additional realpage solutions into the SMB category.
This is validated by the fact that while units grew significantly driven in large part by building.
Overall ARPU levels also actually grew year over year, highlighting our success in selling additional products into our install base.
From a technical perspective, our building some integration efforts are proceeding well simple bills integration was completed in June and we're currently in the pilot phase of this rollout with a broader rollout to the rest of the building and base in September.
The other integrations to real page products and services are progressing nicely, but we're most excited about our open.
Architecture that is under development and we expect to start testing later in the year.
This eight essentially makes building them open to third party applications that desire to integrate with building them.
Both yardi and Breeze, and App folio, which we compete within this segment, our close platforms, which we believe stifles industry innovation.
At real plays we believe platform should be opened so that innovation from third parties can complement and expand the overall value of the building and platform.
I'm very excited the progress, we're making and continue to believe our SMB strategy represents a tremendous opportunity to drive organic revenue traction.
Over the long term.
Thank you for joining us for today's call as you know Tom first will be transitioning.
Out of real page over the next few weeks. So this will be his last earnings call. We want to thank him for helping us pivot our business for expressive growth well above a $1 billion in revenue and with that I'll turn the call over to Tom.
Thanks, Stephen Good afternoon, everyone.
Steve highlighted Realpage responded at a very high level to the challenges presented by the covert 19 pandemic in Q1 and Q2.
Our team built the real paid shipped long before the pandemic to excel and as navigating it skillfully.
We believe real page has a powerful reinvested reinvigorated organic innovation engine and the ship is turned it on of course for long term market leadership and growth in revenue and margin. Despite the rough covert 19 season.
Second quarter financial performance reflects the strong growth.
And reflects the strong realpage positioning and the response of its team.
Total revenue grew 17% year over year, which included 9% growth on inorganic basis.
We exceeded the high end of our revenue and EBITDA guidance range by six and $10 million, respectively, and we are raising the midpoint of our full year outlook by 10 million and 50 basis points, respectively to reflect our confidence in higher growth and margins.
Our earnings and cash flow performance were strong.
Adjusted EBITDA grew 17% year over year to $80 million.
We generated nearly $75 million of operating cash net of changes in customer deposits.
This represents a record performance for both metrics.
Total real page HCV growth was 19% compared to the prior year, consisting of 14% new unit growth and 5% ARPU growth.
We ended the quarter with almost 19 million units consisting of nearly 10 million multifamily units from owners and managers with over 5000 units and over 9 million Esa SMB units.
Total bookings production experienced a strong start to the year, but decelerated significantly in March through May.
By the end of June 2020 bookings were ahead of last year and are accelerating.
And we're seeing solid sales across all product lines, especially solutions that enable more virtual leasing and living.
Total sales team members at the end of the quarter were 625, reflecting 28% 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 revenue growth perspective product family growth performance was led by payments building them renters insurance Realpage utility management.
Modern message Imus and our revenue management platform.
From a profitability perspective, adjusted EBITDA margins were flat compared to the prior year period.
Margin performance was driven by continued investments for growth and included incremental expense related to realpage adapting to the cobot 19 environment.
Despite these incremental costs were able to ramp down some cobot 19 costs faster than anticipated.
In addition, we continue to experience productivity gains from our focus over the last year on simplification.
And we also received some uplift from co bid reduced.
Cracks and from reduced cobot 19 related costs, such as traveling employee and medical benefits as many.
Procedures were restricted.
Looking at the drivers of our detailed product development cost as a percentage of revenue decreased 40 basis points year over year and continues to be driven primarily by our efficiency initiatives implemented in early 2019 that enable us to allocate resources towards innovation projects, while optimizing maintenance projects.
Yeah.
Sales and marketing cost as a percentage of revenue decreased 110 basis points year over year and was driven primarily by more efficient marketing spend and decreases in travel.
We still see opportunity increase the size of our salesforce in order to reach more institutional and SMB prospects.
We're also pleased with results were getting from increased virtual selling webcasts solution that expert webinars and virtual client business reviews delivered by our account managers.
General administrative cost as a percentage of revenue increased 190 basis points year over year and was driven primarily by incremental acquisition related costs as well as infrastructure and personnel investments to drive efficiency and scale over the long term.
These costs are expected to decline by the end of the you're creating strong DNA leverage as we exit twentytwenty and move into 2021.
During the quarter, we generated nearly $75 million of operating cash excluding the impact from changes in restricted cash relating to accounting treatment changes.
We raised $632 million in proceeds net of fees and capped call instruments in our may concurrent offering of $300 million in one and a half point convertible debt and $300 million of common equity.
Each with an exercise greenshoe over allotment for a combined $90 million an additional proceeds.
The convertible debt is callable after three years and has an initial conversion price of $76 in 70 cents per share.
Real page simultaneously entered into cap call transactions to raise the effective conversion price to $118 per share.
Realpage used $230 million of the proceeds to fully reset at 600 million dollar revolver and the remainder is currently retained on the cash as cash on the balance sheet, which excluding the impact from changes in restricted cash relating to Kevin's three cheating accounting treatment changes now sits at $639 million.
Dollars.
Our leverage ratio is now 2.3 times.
As we anticipated this is towards the low end of our target 2.0 to 4.0 range that we believe is operationally.
His operationally optimal.
On a run rate EBITDA basis based on Twoq results the leverage ratio would be 1.7 times. Thus as we look forward. We believe realpage is very well positioned with a strong balance sheet to execute on our growth strategy and what we continue to see as a market that may allow for more opportunities to deploy the capital.
Before I turn to guidance I'd like to frame the scenarios, we contemplated in establishing the high end of our range, we assume that we'll see over the remainder of the third quarter end year.
A continued ramp up and returned to work levels leasing activity levels and our customers willingness to engage in new projects.
In addition, the high end assumed that we will see meaningfully meaningful unemployment stimulus signed into law in August.
At the low end of our range, we soon lower or no unemployment stimulus, resulting in substantial downward pressure on rent collection and slower work recovery from the pandemic.
Now turning to guidance.
For the full year, we're increasing our outlook for non-GAAP revenue too.
1.135 billion to $1.155 billion, representing 15% to 17% total growth, including 7% to 9% organic growth.
Adjusted EBITDA is expected to be 300 million to 308 million, representing an adjusted EBITDA margin of 26% to 27%.
Non-GAAP diluted earnings per share is expected to be a $1.77 to $1.84.
For the third quarter, we expect non-GAAP revenue of $288 million to $294 million.
Which represents year over year growth of 13% to 15%, including 5% to 7% organic growth.
Adjusted EBITDA is expected to be 74 million to 78 million, which represents margins of 26% to 27%.
Non-GAAP diluted earnings per share is expected to be 43 to 46 cents.
On a personal note given this is my last earnings call CFO Realpage.
I'd like to publicly thank all realpages for the great experience that working with you has been.
I'm very proud of your fierce commitment to supporting our customers.
And I'm proud of your energy and zeal around our north star of innovation and simplification.
You are the right team and Realpages, the right ship to lead our industry into the future.
I'd also like to thank you are real page shareholders for your support it's been a pleasure to serve as Euro page CFO.
This concludes our prepared remarks, operator, let's open the call for questions.
Thank you.
At this time, we will conduct our question and answer session.
If you would like to ask a question. Please press star one.
On your telephone key.
For me Tom will indicate that your line is in the question Q.
The press Star followed by the number two if you would like to remove your question from the Q.
Participants do you think speaker equipment, and maybe necessary to pick up your handset before pressing the star.
Okay.
[noise] first question comes from.
Jason Celina with Keybanc capital markets. Please state your question.
Hi, Thanks for taking my question.
I can hear me okay.
Hi, Jason.
Hi.
Tom.
If we kind of think about the trajectory of kind of long term target.
Recognize that there's great opportunity ahead, with especially with kind of build them and SMB, but what are some of the milestones that we should think about before we some kind of think about that path back 30% EBITDA margin.
Well.
We're going to get natural scale.
Just five growing revenue.
DNA is.
Hi, good opportunity and plans and we clearly believe there's significant opportunity to become more productive on cost of sales.
We think we can reach that target.
In the next couple of years, certainly on a run rate basis.
Without.
Much change to the Expensed revenue ratio on product development on.
Sales and marketing, which we do want to continue to aggressively fund in order to.
Continue.
Yes.
March towards.
Higher and higher revenue levels.
And as we think about those long term plans and we've talked about 1 billion and a half run rate target and 500 million in EBITDA target to exit 2020 that would imply something on the order of a 30% EBITDA margin as a midterm target for so thats that type of a balanced approach on striving for organic growth in it.
Innovation, along with delivering margin expansion is something we remain focused on obviously 2020 is a bit more about for us.
Operating through Cove, and making sure we're delivering for customers in delivering that balance, but we are focused on on growth and margin expansion as we think about the future.
Okay, Great and then one quick follow up.
We think about.
Property manager budgets and the budgeting process there.
Little bit of uncertain left and especially with.
The decision on stimulus for the second half, but with some improvement in leasing activity and other trends have you seen any time that maybe some customers might be wanting to turn any projects on it that previously delayed or or I guess, what do you think.
We we definitely saw.
A continued improvement throughout the duration of the second quarter in terms of our customers' willingness to sign up for new projects and activate those new projects and engage with us and deploying technology. So as an encouraging should encouraging trajectory over the quarter I think as Steve highlighted in his prepared remarks, there is still quite a.
And in the market as we think about how that momentum continues but the signs during the second quarter were definitely encouraging towards readiness to do more new projects with Realpage.
Great appreciate the color. Thank you.
Thanks, Jason.
Thank you.
Our next question comes from.
They are linked audio with JP Morgan. Please state your question.
Yes, thanks, guys I wondered personal actually Tom Congratulations on finished tenure on on a high.
Onto the business in terms of the virtual leasing pollution and kind of highlight that are high demand can you give us a sense of what percentage of the business that Rep. Then today and are all of those fees on internally developed technology or is there any third party license technology that is embedded in it.
Leasing is primarily internal development, but we do obviously rely on the core AI plateau.
Andrew Burns from other.
Parties.
The.
The big change here is can we deliver a better experience.
At least 16 hours a day.
To a prospect that wants to tour a property if they visited virtually versus.
In person.
And we believe.
Vehemently that we can.
And that is the thrust of a lot of the development that's that's underway.
Right now our clients are using zoo more.
Form like that to do virtual tours and while that is good and the.
Works, it's not optimal from a consumer experience perspective. So that's what we're focused on on doing I do think the industry will will enjoy two benefits one is.
Better conversion.
And the second is just lower cost for.
Leasing labor.
You should not going to eliminate the leasing agents in fact, what's what's going to happen is they will get re purpose to become a virtual leasing agents working out of their apartment. They don't actually have to come to the leasing office in order to do their job.
But theyre probably be.
Fewer of them and there will be utilized much more efficiently because we'll be able to manage more than one property.
And certainly as the first part of your question. We have we have several technologies that I think could could fit in here.
You know, including portal, our portal capabilities leasing capabilities payments that all support virtual leasing in living technology. So it does really well in total if we think about all that represents a significant minority of our business in the quarter.
All right, Great Hey, one follow up the contact center solution that you offer out how you've been able to analyze that through kogan 19 in that taken any revenue hit.
Well contact centers are probably more important than coven environment not less.
The VA Chad pot is actually been helpful. Because we we were we would have had a hard time staffing up.
To handle everything without.
Without a chat.
It's also.
That's helpful to clients because the cost of AI supplemental contact centers is less it's lower.
We actually see the the contact center revenue going down.
In the future, but because we're so much more efficient we believe we can hold a profit.
Of.
At a.
So.
With a higher level certainly margins will go up.
The answer and as you know that the contact centers is one of the larger pieces of business and our leasing and marketing area and the overall that business has been.
In recent recent quarters as trended around zero organic growth and contact centers lagged a little bit in it. So this has been something that's that has not been a secular growth driver for us it's been the opposite so this new technology here.
As something that we're hopeful that.
And anticipate can drive growth and profit against that long term demographic trend.
Perfect. Thank you.
Thank you. Our next question comes from Matt Hedberg with RBC capital markets. Please state your question.
Hey, its standard perks in for Matt Hedberg. Thanks for taking your questions you highlighted friends through the quarter prepared remarks, and then in the answer to the first question. There wondering if you had any thoughts on trends or feel for the environment through July here.
Is there any way to think of the month of July versus June or even July versus past lies.
So that's an insightful question.
It's it's one that has been top of mind of.
We had hope Congress would make a decision in all.
Unemployment stimulus before the existing program expires, but.
Given that we don't know exactly what's going to happen.
As our expectation the.
August rents will.
Probably collect at a lower level than July routes.
I'll add to that to Steve you can also go look Dan NMHC continues to publicize weekly the stats on some of the the activity levels that we pointed out so those are continuing to show.
Reasonable levels of health through July is the most recent data that we share with them.
Yes.
But much declined at all.
In Red collections, it was down slightly but.
That was also be bank in large part because the segments. So so good yeah. Okay. That's what kind of I asked the question because their last survey showed deteriorating trends in July actually but it doesn't sound like something we're seeing so.
I have mentioned about the the rent payments last quarter, you provided us with the percentage of units paying rent.
300 basis points decline in April.
This last year is there any update for May June July perhaps.
So Dan we absolutely see their data that's our data.
There is a marginal deterioration on on the volume of payments.
And you can see in our investor deck to we posted after market close where we shared some of the activity levels that we shared last quarter to be helpful.
Such as the leasing activity that shows that shows a continuation of the health that we saw in June. So it's definitely too early to really talk about how July rent cyclical as though because the July rent cycle closes out in the second week of August hit US when you really know exactly out finished out but yet no you're right that NMHC is showing.
About 100 basis point potential deterioration in July so far on the data versus last month.
Thanks, Tom.
Our next question comes from John Campbell with Stephens. Please state your question.
Hey, guys good afternoon, and Tom Congrats for the successful Ron and best of much of future endeavors.
On the thank you, yes, absolutely on record and services I mean, obviously really really good growth can you guys in the quarter I just want to unpack that one for a little bit. If you guys could talk at a high level. The stream maybe coming for cross sells particularly I guess as it relates to build them and then on payments I know that was.
Out of US, we're expecting that to maybe a bit of a headwind with coded it sounds like Netflix tailwind that actually helped drive growth. So maybe if you could talk to kind of what drove that reversal in the quarter.
Yes, so so billions results do spread across our product family buckets, and I know that makes a little bit more difficult for you, but buildings momentum continues to be strong we're not going to breakout there specific performance separately, but but the business is performing well there and is largely following the real paid trends in terms of the the.
Transactional weakness that we anticipated due to cultivate in the building business was a little bit less than we expected and they continue to execute on strong growth.
You're right that we had we had highlighted that there was potential risk in payments and.
The net effect than you can see this in our growth in the the resident service bucket was actually a net a little bit of upside in that bucket driven by.
Some mild payments upside due to the code 19 environment.
We did have some negative effect due to covert 19, that's that's shown in the performance primarily in the property management.
Property of product product families and the the the leasing and marketing product family.
Okay that makes sense and then staying on the am SMB market, Steve just a really high level question here, but you had no room for a couple of months now.
How are you doing our into the market. If you could maybe break it down I guess, what the most encouraging thing you've run across thus far and then maybe on the flip side, what's been the most surprising or kind of challenging you've seen.
[noise] building of is a pretty much right on plan we.
Okay and covert image is still performing.
Higher growth rates for them when we bought it.
We now have 9 million units in the SMB space, which makes us.
So by far the largest of.
Technology provider in that market.
It's $424 million solution TV [noise].
And.
We anticipate we will continue to do well in that space because it's so under penetrated.
Or just lots of room to sell other real page products and services into that space and.
It's got 50 million total units so the rich theres a lot of.
Opportunity just to continue to expand units from them that area.
Okay. That's helpful. Thanks.
Thank you.
Our next question comes from Pat Walravens with JMP Group. Please state your question.
Great. Thank you.
So two questions I'll put in both at upfront first off is there.
Is there any update on accounting related matters and then the second one would be Steve what are you seeing.
Competitively in like a core.
Part of the market in terms of your traditional.
[noise] like a branch on achieve countertops and take that Brian We do have some good news on on the one front, but also talk about dumb some of the strength and our cash flow. If you would sure you bet. Thanks, Pat for your question good to hear from me again.
On the accounting front over the past seven months since we announced material weakness.
We've completed healthy review of the entire processes.
Surrounding the controls and we've made significant improvements in both the IP security and all the ITC general controls.
We anticipate that when we filed the 10-Q that we will have successfully remediated the material weakness.
Yeah, what lunch address on some of the strengthen the cash flows sure.
As we reported in the.
Operating cash flow growth for the quarter that was really driven by two primary things one was the EBITDA growth those.
In the quarter, but also we had a very strong performance on cloud exchange lives.
Led to the strong operating cash flow as Colin began taking it to fact, we quickly put together cross functional team involving our receivables team and our account managers to begin a collaborative discussion with our all of our customers also we quickly develop tools that enabled our teams to assess CLI.
In health and begin identifying risks that we were seeing the portfolios. These proactive measures led to an improvement of DS. So of eight days year over year. So we were down to 41 days. So the the operating cash flow had a very nice quarter really driven by the EBITDA growth and just very strong collections.
Yes. Thanks, Thanks for that question, Pat Bryant Bryant was a huge driver gain his team behind both those initiatives. So it's a big success for US Steve had also asked about competition.
We don't like our competition, but.
We really getting out was the growth rate, but yes.
I'll.
We see the same a same cast of characters from the.
For the large guys in there.
Don't think there's really been a change in the competitive environment of.
Most of our sales thrust right now is in virtual leasing and limiting and we think we do have a competitive advantage in the in those areas. We certainly have a competitive advantage in all revenue management to technology, which is becoming more and more important as we move forward in time and start to optimize.
The pricing of amenities, it's no longer about just optimizing base rent, it's about how do you priced parking spots and.
I guess suites and.
All of the 140, some odd amenities that that owners can use to.
Increase yield without raising base rent, which they're having a harder and harder time doing.
So we think we got a good strong competitive advantage there I will say there is a lot of.
Of PE VC backed smaller companies attacking this area of virtual leasing and living and.
Really thinking about what is the next generation of apartment is going to look like.
So this is one of the reasons why we wanted to put more money on the balance sheet. Just so we were well prepared to.
Capitalize not just on our own internal innovation, but also look at what everybody else in the market is doing and Ando were prudent acquiring innovation and not just building it ourselves.
Great. Thank you.
If I can ask I don't remember how long ago.
Period, where the partnership between Yardi in one of their needs to be product solutions Inc. had had gone south and you're saying that there were some big clients that were up for for Grad as it has never been up for grabs needs with that sort of multi.
Product deals Im just wondering has that moving played out.
Yes. It has they settled the lawsuit.
They won't tell us what the settlement was so I.
I don't know really know how it worked out but.
Have they do cooperate.
Today so.
But there also I don't think they carry much for each other.
Any how that opportunity is behind us.
And we did have some things arent that by the way.
Okay, great. Thank you.
Thank you.
Our next question comes from Josh Lammers with William Blair. Please state your question.
Great. Thanks, guys good afternoon.
Another one on John you noted that simple bills integration into building is progressing well on I think last I saw you guys. So when the process of integrating lease ladson Imus.
So I'm curious what will mean that puts you in for integrating the legacy Realpage solutions that you're remarks for building them and then once fully integrated the does their become a more concerted sales effort or is it fair to say that cross selling regarding meaningful underway.
Well, we have an integrated everything so theres more work to be down there. We have expanded the number of salesman. If you. If you look at the increase.
In sales reps I believe it was 576 in the ended the first quarter and we're up to 625.
A big chunk of that is in the SMB space. So we are.
Definitely.
Expanding reach.
In that and that market.
And.
And Josh remember our plan was to bring real pages.
Realpages products to build them overtime over a careful path.
And so we are making significant progress and we will announce availability of of real page services on top of build them over time, but it is absolutely progressing with the operating plan will put together at the launch I think we can you can really see it too in the in the numbers.
ACB was up 35%.
In the second quarter units were up 26% and probably the most interesting increase was revenue per unit was up 7% that not may not sound like a big deal, but all of the building units that came in were at substantially less than $47. So that we made all of that up.
Through cross sell and were able to increase.
ARPU.
7% on top of that so theres clear evidence that strategy is working.
Okay. Thank you.
And then with all the new supply coming to market that you mentioned and it sounds like.
Many people are leaving urban core curious if we've gotten to the parts here, where larger larger urban multifamily complexes that there's a point of.
You're on your rent declines and added concessions and assuming that's the case I'm wondering if you could just walk through how the revenue management yieldstar tools function on the down market.
Wondering if there is a counter component there what to expect.
Well, we've tested the revenue management tool and it down market in 2008 nine.
And we're very carefully monitoring.
The this engine to be sure that its optimizing.
Exactly the way it should be in a down market its analyzing literally hundreds of variables that drive.
What the price optimal price should be and it's working very effectively we're seeing.
Revenue managed properties outperform non revenue managed properties through the downturn.
Very well the distinction between urban and suburban is of.
Interesting question.
It appears that that urban is under a little more pressure than suburban because I think the the people that rent in a suburban location pay more because they enjoy all of the density and the amenities surrounding the urban.
Apartments as coded hit there will be one they'll ought to do around those apartments. So I think a lot of resin is just said why are we paying.
$500 a month more deliver here than we can't do anything here versus live.
20 miles north or south and essentially have more square footage it at the same or lower price. So that's what's going on I do think thats going to revert back.
When winter urban is migration from suburban to urban was a clear trend we saw pre pre kerwood in I think that will come back.
Went when.
The all safe sign is.
Delivered.
Thank you Tom.
Thank you.
Our next question comes from Ryan Tomasello with KBW. Please state your question [noise].
Hi, everyone. Congrats on a quarter clearly very strong and Tom best of luck.
On your next adventure.
Just looking at the revised 2020 guidance based on our math it implies about a $2 million increase at the midpoint excluding.
Two queues outperformance.
So I guess my question is why is in Twoq, you strength carrying over into the rest of the year I realize a lot of outperformance in the second quarter related to.
Transaction revenues coming in better than forecast, but your comments.
On a surgeon this virtual demand would seem to imply a bit more strength.
I guess, how much of that is timing related before we start to see this demand.
Benefit the topline and then.
Just as a follow up to that what kind of assumptions are you making.
In the second half in terms of the impact from transactional revenues I believe the prior full year guidance assumed about a.
150 to 50 basis point headwinds for full year revenue growth.
Thanks.
Yes, they flat for the question Ryan So.
Yes, I think of our our guidance range assumes a range of performance that includes some fairly fairly negative scenarios with without ruling out the most negative of economic scenarios that include things such as.
Little to no stimulus being renewed for the course of the year, while the upper the end of the range continues more of the trajectory there were seen thus far this year stimulus renewed continued health in the markets continued.
Ramping readiness and willingness to book and activate new projects with Realpage and what Thats enabled us to do so.
Granted that uncertainty here in front of us, it's prudent to to take a view.
And plan for.
Plan prudently as as we think about those scenarios.
So as we factor that in our guidance last quarter included about a 400 basis points impact to gross.
Versus our prior assumptions for growth for the year on the assumptions. This year, we're looking at the upper half of our assumptions on what the impact would be so we're we're thinking about.
The upper half of a a.
13% to 17% growth rate in 15% to 17% growth for the topline.
Got it thanks for all that color and then I guess just shifting gears on.
On M&A you provided some some commentary in your prepared remarks, but was I was wondering if you can give us some updated color around what types of acquisition opportunities you're seeing have you seem more willing sellers in any changes in pricing and in terms of types of deals should we expect to see similar tuck in acquisitions like a modern message.
Or is anything more needle moving and product expanding like a building also a potential and in this environment.
Yes, we definitely see.
More opportunity in the pipeline and that's just a reflection of the uncertain environment changes the dynamics for innovators that are away from Realpage. So while there is a range of potential opportunities available to us the most likely ones you're likely to see or are those smaller for four to six deals a year that that we've been executing on.
Historically and that makes up the the large largest set of the acquisition pipeline and the good news for US is that with though as the market leader in the strongest platform in the and the reach to customers and strong product synergies, where the obvious home for point innovators.
Okay. So we'll continue to look at those and I would I would say that you are most likely to see us execute on the smaller side, but there is a full range of potential opportunities as we think about more of the mid long term.
Thanks, Congrats again on the quarter.
Thank you.
Thank you. Our next question comes from Michael turn with Wells Fargo Securities. Please state your question.
Thanks, Good afternoon, you've you've talked about the relatively low levels of tech spending industry historically.
Anything anything to call. It didn't seem more recently, we could suggest that as this recent out of uncertainty comes to pass it could maybe help unlock appetite for software spend.
There are a bit quicker than than what creek previously of unexpected.
I think you will see.
Owners, particularly.
Institutional grade properties.
Come to the realization that.
The needs of their residents have changed.
And that more of them, we'll be working from home and if they can't deliver the convenience of work at the place of living they will be at a competitive disadvantage.
That will then lead to investments in technology to upgrade infrastructure and the systems that are driving.
The way you deliver conveniences too.
Residents that are spending more time.
At home.
So our estimate is that.
For our prediction that we'd see an expansion of.
Hi Tech spend in this industry, we still hold.
Thank you.
Our next question Thanks, Mike.
Keith back with BMO. Please state your question.
Hi, Thank you and Tom Best wishes for you.
I wanted to ask about any color you can give us on the CV growth.
That you had this quarter.
And the underpinning to it in how we should be thinking about that as we're rolling through the year.
And not only new units, but it's been kind of direction, a 5% ARPU growth seems.
To be particularly strong, particularly is building EMS growing but any kind of Kelly.
The framework directional comments, you could give us on how to think about.
The CV growth through the year.
Yes. Thanks for the question Keith So as we look at Q2, the CV growth did Mira some of the comments I made around and build them is certainly a strong contributor to that.
Building them a simple bills also an acquisition that's that's a healthy growth driver for us along with a number of the other of functional areas within our product families that I highlighted in the in the prepared remarks.
As we look forward.
Steve Steve paid a lot of attention to technologies that enable our customers to to drive virtual leasing in living.
Certainly have seen a pipeline shift towards some of those technologies and readiness to move to full online payments and portal technology. So there may be a marginal shift that direction as well, but I would think that the full year trend in the growth outlook come at either the higher loan diverse scenario is going to is going to largely match on what we're seeing.
During the second quarter in terms of growth momentum besides that type of a shift.
So maybe kind of mid single digits, our continued growth.
I'm sorry are the growth forecast for the rest thier.
Yes from a growth rate.
The growth rate of ARPU Im just trying to understand is that mid single digit ARPU number is that a durable number you think.
So our guidance.
As was specific to revenue growth, we don't we don't guide generate an ACB basis.
Our organic growth.
Oh a process.
So if you decompose ASV growth make Ms might be way to help you think about it as well.
Our.
Our unit growth has historically accounted for about three to four points of the growth.
Within the coal that environment, it's been a point or two lower than that so depending on the health of the coven environment that may pick up in support higher growth. The rest of the growth has been an ARPU expansion. So I think I think as we decompose the range of our outcome expectation. It is more dependent on whether we see an acceleration on the unit side or not but also.
Also there is our fuel drivers as well as Steve highlighted in the SMB success, we've seen in ARPU expansion.
Great. That's one of them and then Tom you mentioned the leverage ratios.
How particularly even at the run rate you're kind of.
Q2, and so as you think about the cash flow generation you just did some deals.
Do you think about maintaining that that steady.
Debt levels, where you are now or would you consider paying more down but.
We're just any kind of color on how you're thinking about.
That it seems like you want to leave leverage ratios, where they are but just if you could just elaborate what your plans are.
So we feel that we've we've fully strengthened the balance sheet to be opportunistic in this environment.
Our target leverage ratio of two to two to four X.. We think is optimal for driving financial return, while the navy, enabling us to have flexibility to to be out in the market opportunistic in terms of bringing acquired innovators and innovation product into the into our business. So it's at a comfortable reset type of position.
For us now.
We'd like like where that is and as we think about how we're managing that balance sheet. I did highlight that we have a 632 million sitting on cash on the balance sheet.
We're evaluating continuously the best way to optimally maintain that balance sheet and keep the flexibility.
Right now right now fully reset revolver with cash on the balance sheet is attractive given the opportunity. So we're looking at but we are making continuous evaluations on how we can manage that to keep flexibility and end to keep a our costs well matched in terms of interest rate.
Okay. That's it from agent thanks.
Thank you.
Our next question comes from Joe Rolling with Baird. Please state your question.
Great Hi, Steve and Tama best of luck in your new endeavors.
I wanted to ask yeah, it's been a unique situation in the industry because all the major software vendors have kind of come out it's been pretty ashes I'm, just talking about what they're seeing on their platforms and I'm wondering when you kind of span the industry, yet and you appreciate how a real page platform customers.
Doing maybe versus some of the results during hearing about it on they added there is platform.
Are you able to make a case that.
Well outside of your platform I guess, the actual results of your customers. They are actually staring better right now than maybe some alternatives.
[noise] I. Thank you can make that case now [noise].
And we we constantly are monitoring and how well our customers are are doing through what we call customer business reviews, where we compare their performance.
Using our platform to their peer groups will know peer groups will include some customers that are on rail page and some that are.
So generally.
I feel pretty good about the the health of the industry, but we do of course have this uncertainty with respect to.
The the stimulus, but we'll see going forward so.
Very positive right now.
I expect August we will be a little bit shock because I don't think these demos checks are going to get out at the first them up.
But but hopefully by mid month, they will be in the hands of runners and we we won't have a problem.
But right now it's on known and enjoy their that's something that the that our sales team is very adept to join the customers, whether it's our AI screening product our revenue management products out and the these customer business reviews to show them exactly where their properties in which they have deployed at how much.
Lift they've seen how much they're outperforming their comp set and that's that's something we're actively ramping and a and in this quarter were able to shift to to a high rate of virtual delivery and I think something we're getting even faster at to deliver more and more cbrs overtime. So it's really helped the customer getting engaged in and get the effective technology into more properties.
And if I can squeeze in one more it's not hiring in the sales team has continued to be really strong and as I cannot think.
Thinking about getting a new restaurants got them per Doc Downs I sang entering 2021. It seems like a lot of these new hires are going to be hitting the ground running.
In the thought that baby.
Productive routes in 2021, where the argument.
Improving yield than what still maybe going to be no rent growth environment is the thinking that maybe ill be able to accelerate realpage organic rather than have you get any thoughts 10% to 12% still the right number or are all these factors coming together, where it should actually be.
A bit better than if you execute.
Yes, Thanks for the question, John and the idea obviously of investing in.
Sales and marketing the Salesforce, Okay, I highlighted and we did we did add 50 salespeople I'm is definitely about driving organic growth. So it's a little early to project, how that's going to support the growth rate next year will well, we'll hope to do that for you in a in a quarter or too, but that is absolutely intended purpose and and while clearly.
I want them to be productive next year, we're not happy with waiting till next year. So.
You know as we decompose where those 50 salespeople are going and what we're doing operationally from a sales perspective.
Like the customer business reviews. The last question would just answered the sales organization has responded really well with sales delivery in an all virtual environment in delivering more sales meetings.
About two thirds of those salespeople have come in on a on the early part of the sales funnel and the lead generation role to really really try to supercharged. This virtual selling environment. So we actually are intended to try to drive productivity out of the expansion that were did in the second quarter. This year not not next year and I'll try to help us close out the with strong.
Bookings.
Thats great. Thank you very much.
Okay.
Thank you.
Thank you ladies and gentlemen that concludes today's meeting all parties may now disconnect have a great day.