Q3 2020 RealPage Inc Earnings Call
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Were looking within the meaning of the federal Securities laws forward looking statements are based on management's current knowledge and expectations as of the date of this call and are subject to certain risks and uncertainties that could cause actual results to differ materially from.
From those forward looking statements.
Over a dozen candidates during this search Brian stepped up and with the help of a team that rallied around him prove that he could perform the job at the highest level and in so doing one that.
Board of the leadership team and the board.
I could not be more delighted with this decision.
<unk> routes in certain urban core markets and on the West Coast, New York and Boston.
You can review the detail on our website or if you want extreme detail you can subscribe to our market analytics product.
Assessor in our market that has a license money services business or MSP, allowing the best possible protection for our customers.
In addition, early in the second quarter, we introduced technology to enable electronic vendor payments a proactive innovation that is yielding very positive feedback from our clients.
Breaking.
Platform.
If you've not heard about it this is an amazing new virtual leasing feature that enables leasing agents that work for our clients for realpage to jump into a virtual tour whenever the prospect has a question well when the agent wants to highlight a property amenity. This.
This is not to do it is tightly integrated and does not require a second app to work.
Dumpster contamination yep.
Yep trash may physically stake, but it can also stink up your BNL.
At real page, we launched our AI based waste management solution to help our customers reduce the cost of waste disposal. The solution employs camera based aiotv AI and our utility management platform to help operators monitor and manage dumpster capacity and resign.
Equally.
It also detects up to 11 kinds of contamination that create fines and penalties.
In our initial trials the solution reduced waste management cost by 40%.
We can now access up to one gigabit why five from their unit.
On a revenue and $500 million run rate adjusted EBITDA.
Okay.
And expand our overall penetration within that Tam.
And the market is more prime than ever for digital transformation.
This bodes well for the long term business and gives us confidence in the financial targets, we have set.
On the acquisition front, we originally expected that M&A activity would accelerate with the cobot environment.
And we Opportunistically raised capital to position ourselves to take advantage of attractive assets in the marketplace.
Over the ensuing months, we did not see opportunities of substantial size that were particularly exciting so acquisition activity will be notably lower in 2020 than in the last few years.
All time records for real page underscoring the growing demand for our solutions and the strength of our business model.
Totally C V growth was 19% compared to the year ago quarter, consisting of 16% new unit growth and 2% or poo growth.
Organically R. A C V grew 10% driven by 3% unit organic growth and 8% or poo organic growth.
We ended the quarter with 19.5 million units, consisting of 10.2 million multifamily units from owners and managers with over 5000 units and over 9.3 million S. M B units.
Total bookings regained ground after the March through May depth, but remains below 2019 levels, though we were encouraged my pockets of strength in September.
Virtual leasing in living products are picking up booking momentum and demand for our new AI revenue management is starting to prove out in the bookings.
We finished the quarter was 646 sales team members, reflecting 27 per cent growth compared to the year ago quarter, We believe that the demand for digital services among our potential customers.
Currently we have $612 million in cash on the balance sheet.
Our leverage ratio is now 2.3 times. This remains at the low end of our target range of two to four times, which we believe is a great place to be given our growth and operating strategy.
On a third quarter run rate adjusted EBITDA basis, the leverage ratio would be 1.7 times.
We believe this provides significant flexibility to execute on our growth strategy.
Yeah.
The higher end of the range assume stable rent collections and progressive work recovery and the lower end of the range assumed downward pressure on rent collection and slower work recovery.
In addition, adjusted EBITDA will be impacted by the lower margins associated with recent acquisitions.
Continued investment in product development, and sales and marketing and upticks inexpensive as we begin to open up travel and returned to the office.
Finally, we provide certain industry data for the benefit of our various constituents and with our extensive datasets, we frequently speak as industry experts regarding the health of the multifamily market related to collections leasing velocity occupancy and several other metrics.
We have begun to add industry data back into our I R. Fax sheet posted on our website. While this data is not necessarily an indicator for measuring the operating performance of Royal pages. The company. We believe the information is useful for those seeking to better understand the market we serve.
We are also adding our quarterly ACB broken down by enterprise corporate and S. M B customers.
S. Steve Wynn mentioned, Steve Cock and I've been listening to our investors and we're committed to developing and enhancing relevant disclosures for you to better understand the real page story.
As evidenced by a strong results. This quarter, we believe that real page has an exceptional model and we continue to push ourselves to deliver even more value for our customers every day.
We remain very excited about the opportunities in front of us and we look forward to updating you on our fourth quarter call.
Operator, we will now open the call for questions.
Thank you.
So far is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time [noise] questions will be taken in the order. They were received if you are using a speakerphone, we ask that while posing your question. He pick up your handset to provide favorable sound quality.
Anytime your question has been answered you can remove yourself from the queue by pressing one again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time, please hold while we poll for questions.
Our first question comes from Orion, Thomas Hello, I've K B W. Please state your question.
Hi, good evening, everyone. Thanks for taking questions and congrats on the strong quarter.
You know I appreciate that the prepared remarks on bookings, but I was hoping to maybe put a finer point on that in terms of their trajectory through the quarter, you mentioned bookings, where we're still down year over year and three cute as spike any ground. So can you say how bookings maybe you compare sequentially the second quarter and if bookings ended three.
Q, it's September up year over here.
And lastly, you know overall, how would you characterize the willingness of clients, particularly that you're a larger clients you know the willingness on their part to take on new projects with real page have you seen any noticeable improvements on that front. Thanks.
Steve Ashley our president is join US and I think this question is.
Perfect for her to take so I actually.
Hi, Ryan, it's Ashley Yeah, and we Ah as we've reported booking.
And we actually feel very good about our pipeline. What we've seen is is a little bit of a hesitance and taking on some larger or more substantial projects on the part of our clients, but overall, we felt like actually bookings didn't lose as much as I mentioned I think as we initially fair in which I wanted to pretty strong resolve here today and we are actually seeing client.
Taking on more initiative as we enter the fall so we actually feel very good about on the 19th.
Yeah, Ryan I would probably add to that that as you can see in the numbers. When you disclose we've been adding to the sales force recently some of that came a little bit to the acquisitions, but primarily that has been targeted in strategic sales reps adds that we've been making we feel well positioned with a products that were watching in the back.
Half of this year and as I think you've heard of say before it takes several months to ramp the reps. So our goal is to have a fully staffed ramped up sales team to to sell new products and the new year, when hopefully more normal times our about us.
Yeah, the only thing I would add.
Time in your apartment.
That includes the smart building initiative, which I'm very excited about because.
This is gonna unlock some some revenue opportunities, especially in the smart access control area, where where we can start to get deliveries right to the door. We can support short term rentals more effectively.
So you should see the residents service side of our business grow well and finally AI revenue management is a pretty is a big deal for the first time, we're we're now.
Opt.
Optimizing the the pricing of amenities and rent a bulls and that can become a fairly significant.
Incremental growth opportunity for our clients AI revenue management also is just using much more effective and more precise supply demand models that are showing that we can increase the the resolved by as much as 100 basis points of incremental yield the <unk>.
Hi, spray I management.
Revenue management is.
Gonna be you know somewhere around 10 to $12 per unit per year higher than current.
Products and we are getting really some pretty.
Significant interest from our customer base on this product.
Actually in these times.
Alright, thanks for taking the questions.
Our next question comes from Giles a week of bad Please state your question.
Great Hell and Brian Congrats on your I find that.
Yeah, one other thing paging through it new back heat I thought that I was the ARP who.
With your current largest client. So you can just think top 100, I had a pretty nice acceleration year on year. So I guess my question is if you're a well established already savvy real page customer what are you buying a incrementally at this point to drive that type of.
Acceleration and does that give you any line of sight to maybe are two expansion across the other side of your customer audience thinking into 2021.
Yeah I'll take that thank you Joe appreciate it if you look at how we have our Tam built and the multifamily space, we're targeting across 21 million units that that would average to about $418 of <unk>.
To drive an 8.7 billion dollar Tam so.
Our top 25.
I'm I'm, sorry, our top $100, who is at $76.41. So you can see the expansion capability that we have there and that goes hand in hand, with the land and expand strategy that we've been talking.
Talking about for some time now.
The eight the ACB opportunity is fairly robust when you also think about it from our highest penetrated product across our 19 and a half million units, there's only 20% penetrated. So if you look across the product off.
Wearing.
We have a long ways to go in this existing space and a long very long runway.
Okay, great that that's helpful. And then maybe just a bit of an update particularly since yeah actually is on on the call and this was the area of focus, particularly last year, but in terms of the.
Unity platform the progress there in terms of adoption and then any maybe preview on the roadmap going forward and maybe not the next steps of integrating more of a solution sat down to the platform or or feedback from customers, who have kind of under 10.
And the journey already.
Yeah, no I I'd like to give that update I think we've had amazing progress on the unified platform in a couple of different dimensions, you know in terms of migrating our customers, especially are allowed to our customers to the platform has multiple solutions, they say a ton of value and moving to the unified platform not just because of the integrated log in touch.
And even that because we've now migrated you know quite a bit of.
Ah Ah kind of proactive learning and on demand.
<unk> services into the platform and then this share we've launched part of the Onboarding capabilities. So from an implementation perspective, we're actually starting to drive that three in a unified platform.
And our customers that are using that functionality are actually pretty plants by it because it creates so much simpler way to come in and take on real page products and services in terms of what's coming we're gonna finish the journey in terms of the Onboarding process all of their real pay tuition far multifamily customers will be integrated into the unified platform by the end of.
The first quarter most of them actually by the end of this year and that will become actually a substantial initiative in terms of making it easier to implement and use our products quickly and be actually longterm drive or cost of implementation down because it's gonna drive a lot more automation and feed into the process. So that's kind of our next.
Focus area annuity, what we've been working on this year and what we're kind of <unk> I need to complaint next.
Next year.
And so the feedback has been really good another other initiatives that we're taking up for next year have been around more unified kind of workflows that might <unk> between our solution, we're actually kind of starting to drive those work clothes into the unified platform and then the last thing thing that we completed this year with as we upgraded our legacy proper.
Pretty management solution, we actually did it into the unified platform. So most of the one slightly thing and rent functionality now appears in the platform and is very integrated there too. So it's been a really good couple of ear screen entity.
That's a great detail thanks, everyone.
Our next question comes from John Campbell of Stevens. Please state your question.
Yeah, Thanks, guys and I'm, Brian Congrats on being named the permanent CFO Congrats to you.
As reach you know, we're getting you know I think some of our concerns from investors right now are a little bit more on the macro shied or multifamily side, but you know Steve is right start to roll over a little bit here.
How does that change property managers, you know just high level strategy and and how they kind of make up for that lost Ya. You know you guys clearly have a lot of different options. There. The C V and you know you mentioned the AI revenue management, that's something that's really starting to pick up some interests, but what are some of the other main things you guys have that can kind of help recover that you know maybe some of the things being under utilized the day that might be a little bit more.
Hunters are cool.
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Is down some.
Rent growth, it's down about one.
<unk> 30 basis points in two three it was down 20 basis points in queue too.
Well, that's a national average so you are seeing a hip to rage.
Hockey.
Occupancy surprisingly is not really change much it's still 95.7% in Q3 now there are areas of the country that or.
More impacted by this environment. So these are national averages.
We were fortunate to.
That would be very diversified in our customer base. So is insulators from issues that can impact customers in one market.
<unk> way to.
To help our customers is too.
Allow them to optimize.
Base rent the city.
To perfection.
Wherever they can analyzing supply and demand imbalances, so they get the right price.
The second way to do it is to start to monetize amenities and rentals and by that I mean charge for guests.
Guests Swiech charge for a strip itself storage on the property charge for parking there's so many opportunities to generate incremental yield.
The most of our industry has not yet adopted we see the opportunity to generate as much as 300 or 400 basis points of of incremental yields simply through the monetization of of the services that they.
Have historically offered for free.
The last way I'd say, we can help our customers is is managing their their sales pipeline more effectively.
If you are capturing.
Capturing every lead and converting it effectively you're gonna generate higher.
Killed if.
If there's leakage in Leeds, where they just don't convert because you don't answer the phone or you don't handle the lead properly.
Then you're going to suffer the consequences of that so all of those marketing suite of products that we offer.
Especially the new this new touring.
Live touring product that we're introducing are gonna make make it a lot easier for customers to convert leads into Lisa so.
Because the industry is dying for this technology they they they absolutely know they need it and.
The good news is they can actually cut some cost.
Because working for home from home as it turns out as much more efficient than bringing people into the office.
So we actually show you some opportunity on the cost side to help the industry.
Yeah. That's that's very helpful. That's a good color and then last question for me on the F&B opportunity. I mean, you guys are standing that up pretty quickly clearly that's a big opportunity for you guys over time, you know as we think about it just kind of near term I mean, you guys. It looks like your units were kind of ahead of schedule at least relative to us your or if it was a little bit low.
Sure, which I think that's probably just mix shift of a better you know <unk> S. M. V revenue. So I guess first is is that right on the RP side and then if you could maybe just decouple or just kind of impact of growth. If it's deep more driven by our Pooh on the F&B side or is it more units at this age.
Yeah. That's a that's a very astute question there John Uhm, what we're seeing is is the accelerated growth on the.
Fill them units are a little bit lower price point, then the rest of the category that week Apprise N N S. M. B, so our our growth and build them is actually causing a little bit of headwind and the expansion of the R. P U in that area, but overall build.
Is growing at multiples of our organic great. We we couldn't be more happy with the acquisition and how it's performing thus far.
Okay. That's helpful. And then I guess the unit the rate of growth from units is that that's picking up faster than I was just talking about the the breakout between the unit Norbu just within S. M. B cause I know with our people you guys have a really big potential to you know kind of get better attach right to kind of overlay. Your ancillary services I was I was.
Curious, which ones driving kind of the growth at this stage.
Yeah, but at the current moment in SNB, it's primarily based on the units.
But we have quite a bit of potential of <unk> N. S. M. B as I think you know the penetration and a bass that building them had was was small in comparison to wear real pages. At it's also small in comparison to wear polio is that so there is quite a bit of room.
Within the building unit base to to expand our poop.
Perfect. That's what I was looking for thank you guys.
Our next question comes from Sterling Naughty.
J P. Morgan Please state your question.
Great. Thanks. This is Jack Nader on for strong Tonight. Thanks for taking my question. The first one is just an E organic growth rate I know that.
That you mentioned that it might be towards the higher end of the range, given some stable rent payments and lower and otherwise.
Yeah, I mean, there's a lot of us dependent maybe on the passenger side with a stimulus bill in the fourth quarter.
I don't.
I think the stimulus bill clearly is going to help particularly in the area of unemployment subsidies we were.
Handedly.
Very surprised at the lack of stimulus going into the third quarter really didn't have much impact on the on the overall market I think it did have some impact on the west coast in the New York Boston.
Areas I.
I do think the country needs a stimulus package, especially in the in the.
Areas of high unemployment.
On the other hand, so far the industry whether this this.
We're off water fairly well.
Okay, great and Steve actually.
Comment on.
The West Coast, New York, Boston is a good segue into the next question, which is on any any commentary you can provide maybe on the demand or behavior of your mostly urban owners and operators versus suburban or rural owners and operators as we head into 21.
Urban has been impacted some what bug covid what happens is when all of the amenities of urban living go away people question why they want to pay a higher rent to live in an urban area. So we did see some flight away from the urban core.
Or into the suburban markets I don't know if that's going to be permanent I think.
The reason people live in the urban setting are not gonna change once.
There's a vaccine and we get back to normal living so I don't think the urban shift is one that you would consider.
Long term.
The.
There's a lot of them.
Of.
Issues on the coast.
With.
Great rent payments.
Or collections have actually.
Been impacted.
So I'm in those markets.
And we do think of subsidy there would be very helpful.
Let's.
It seems that the Midwest or the south and the.
Southwest had been doing great.
I I'd like to add a little bit of more color to that.
From a real pages perspective, we're fortunate that our customer bases diverse in terms of size geography in percentage of revenue.
This insulate just from wide swings in demand in the individual market. So some area struggle other us improve and we continue to grow.
A feature of the.
That's still not fully appreciated.
And the story of real page is that when occupancy is under pressure the demand for real page solutions, historically increases and that's something that I I think those that are are looking into the story need to understand.
Right great. Thanks for the color.
Our next question comes from Michael Taryn at Wells Fargo Securities. Please state your question.
Hey, there thanks and good afternoon.
The leasing in marketing segment. So nice rebound here in Q3 can you expand on what drove that uptick if there's some way to think about how much might be true to do to broader stabilization versus the bigger shifts towards virtual you're referencing here as well.
Yeah.
Good question, it's a combination of both really our online leasing portfolio benefited from some leasing transactional recovery expanding both year over year and sequentially. Our online living Sweet is also experiencing exceptional demand.
Modern messages, having it's best rewards instead of your ever so covid doesn't really seem to be.
Slowing down their revenue our marketing sweet, it's still being impacted by Covid as PMC, the slowed investments in digital marking and tomato new websites.
Of course, we also have the contact center in this category, which has been a headwind for quite some time, but perhaps the largest driver of the growth has been the recovery and the screening business and Q2 that was a 7% contraction as leasing velocity dropped in Q3, we saw at least at least in velocity pick up.
And screening slightly increased year over year.
We're still not back to 100 per cent of where the screening was but we did see a nice bounce back into two three.
Really helpful color, Brian Congrats on on formerly taken out and the new rule Ah. The bottom line came through with EBITDA outperformance as well anything we should be thinking about just related to lighter overall expense given towards your mode or how should we think about the potential for Margaret expansion from here, especially if the world does trend back towards an office.
Yeah, I think in the quarter to be candid, we had about $7 million of what we would kind of coin covid related costs.
That were saved primarily through travel trade.
Trade shows even the facility costs. So you know about 4 million of that was actually planned and our guide. So we slightly beat it a little bit just versus what we were thinking but you know I I think all of US would love to get back into the office, but I'm not quite sure that's gonna happen and and two four.
I really hope so but.
So where where we are definitely planning on continuing to have a little bit of of cost benefit associated with covid and two four but it's not completely in there because like I like we said in the prepared remarks, you know we are hopeful to get back traveling and and back into the into the buildings.
Great. Thank you for appreciate it.
Our next question comes from Jason Celaeno have Keybanc capital markets. Please state your question.
Hey, guys I'm, Brian welcome to the call.
And congrats you know one question actually on Sunday and I appreciate the breakouts disclosure here, but I went to the strength do you think S. M D.
Do you think more nimbler organizations without the same types of.
No budget approval, so you'd see maybe at the enterprise level.
I I'm not sure there's a correlation there.
Yeah that is true S. M. B doesn't have to go through the approval process that the enterprise or corporate clients.
Must bear.
So so from that perspective, the the sales cycle is more accelerated and it shouldn't be which is good.
That should be the also doesn't.
Really rely on the field salesman, it's all telesales in digital marketing.
So there's a lot of benefit there's a lot of positive things about S M b and the and.
And the speed of the selling cycle and the the speed of implementation.
Bill I'm in particular is.
It does it does not require.
In order for them you can sell provision it so it's it's really fast.
I'm not sure that's responsive to the question, but if you want to elaborate alright.
What I would say.
Oh go ahead, yeah, I've got a couple of thoughts, but if you want to be more specific I can probably a a song.
Sure I can I guess, our financing is how does the willingness and kind of compare and contrast with.
S M b level that you're paying today versus me anytime.
Enterprise.
So I would say that where.
Well when I look at S. N D versus enterprise I mean, we can just state the obvious of Crescott S. As state is kind of sad and our sales cycles and F&B are faster and our deal sizes are smaller not just on a cuddle dollar value, but generally on a started dollar per unit value and what I mean by that is they.
Tend to to buy in smaller chunks versus a larger company, who might buy more of an enterprise type solution. So while the enterprise sales cycles are a bit longer they tend to buy more of a complaint policeman if that makes sense. So in in light of Covid, though I did take a look at whether we saw a difference in sales productivity by Sagna.
Whether it was really different by F&B, what we call a mid sized our corporate versus enterprising interestingly, we didn't say a bank delta between those three segments. So we're not saying a difference and a market difference in performance by sort of type or size of customer. So I I think that's not.
What's propelling the crowd with Covid, if that's what you're saying, it's covid, making an ass and be more nimble in an enterprise Marseille now I think you'd have to get more specific and like a specific customers and the dynamics that they're facing right and Jason don't forget that and the SNB world, especially in the multifamily neck of it plus the single family neck of it.
Those customers those owners those operators are dealing with the same problems that the enterprise and corporate level.
The owners and operators of of real estate or dealing with and traditionally they've been underpenetrated on adopting technology and our technology is built to improve their efficiency and to improve their NOI. So you know if they if they're ready for the technology investment they can <unk>.
Through their their returns with us so it's a very underpenetrated market and it took quite a large opportunity.
Great I appreciate the card that actually answers my question. Thank you.
Our final question comes from Stephen Sheldon of William Blair. Please state your question.
Hi, guys and all that other congrats on the new rolled Brian and really appreciate all the great detail across the board here.
Already sounds like you've seen some tracks from the community connect including the Camden announcement, I guess, how much material do you think the solutions can be from a financial perspective over the next few years and for clients that have already signed up what have been the initial key selling point that they get get them kind of over the hurdle to sign up for it it seems like it could be many different.
Yelled improvement opportunities with it.
Well.
The compelling reason to consider this as the cost of deploying is smart building has declined substantially in the last 12 to.
24 months.
You can now implement too smart access smart I O T devices in bulk Wifi for in the range of 1200 to $1300 per unit.
Now are model does not contemplate that we sell that Capex. We're more you should think of us as a smart building.
<unk>.
[noise] provider of service, where the managed service and.
We're trying to drive margins in that business that are creative to adjusted EBITDA. So we don't want to be in the hardware business that's not the goal here.
But we do want a facility the integration of smart buildings with smart living so let a resident only has to use one application to open their door access their internet look at their thermostat look at their water energy consumption.
Pay their bills and or a service request in ever in in other words everything that the resident touches as in one simple handheld device.
That that's the the Holy Grail in our view and and it's it's one of the reasons why we think smart building is so important.
Got it.
Sounds like your main coughing it on the 2022 target some of which would depend on continued emanated. So just curious how the pipeline is looking there, especially in 2021, knowing that you've been very disappointed and then C. V. Also briefly mentioned the international potential and they're prepared comments or just wanted to get an update about how you're thinking about the international opportunities.
At this point.
The.
The M&A activity will be substantially lower in 2021.
And it has been historically I do believe we filled in most holes, what we felt we needed to acquire companies to fill with the last.
Area being the smart building acquisitions that we've made.
So I don't if you think about the base business and then.
Type of product extension acquisitions, we've traditionally been making I don't see us.
You know continue I don't see us expanding that if anything it will go down now.
Now.
That doesn't mean, we won't look at it well the opportunistic.
Competitor that once the exit for whatever reason or look at adjacent markets.
That might be attractive for real page to enter in the real estate area.
Including some international markets, it's it's very difficult to launch into another country from the ground up it's much better and are viewed and or foreign markets through.
An acquisition and then grow that.
So we are clearly interested in expanding our footprint our clients are expanding overseas, we want to follow them.
So.
Generally.
Oh, I wish I could give you more more guidance, but that's weird [laughter] got it it's really helpful. I appreciate it.
And and listen we know a lot of you have to jump now onto other call. So on behalf of the real page team. Thanks for joining us on a very busy earnings day, we're excited to connect with a bunch of you in the coming weeks and we look forward to updating you on our progress next quarter have a good day.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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