RealPage Management Discusses Q3 2013 Results - Earnings Call Transcript

| About: RealPage (RP)

RealPage (NASDAQ:RP)

Q3 2013 Earnings Call

November 07, 2013 5:00 pm ET

Executives

Rhett Butler

Stephen T. Winn - Founder, Chairman, Chief Executive Officer and President

Timothy J. Barker - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Jobin Mathew - Deutsche Bank AG, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the RealPage Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this call may be recorded.

I'll now introduce your host for today's conference, Rhett Butler, Director of Investor Relations. You may begin.

Rhett Butler

Thank you, and good afternoon, and welcome to the RealPage financial results conference call for the third quarter ended September 30, 2013. With me on the call today is Steve Winn, our Chairman and Chief Executive Officer; and Tim Barker, our Chief Financial Officer and Treasurer.

In our remarks today, we will include statements that are considered forward-looking within the meaning of securities laws. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today, November 7, 2013, and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties is contained in our annual report on Form 10-K previously filed with the SEC on February 27, 2013, and our most recent quarterly report on Form 10-Q filed with the SEC on August 6, 2013.

RealPage undertakes no obligation to update any forward-looking statements except as required by law. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures in which we will exclude certain noncash or nonrecurring items, depending on the measure, such as acquisition-related and other deferred revenue adjustments, depreciation and asset impairments, amortization of intangible assets, net interest expense, income tax expense or benefit, stock-based compensation expense, any impact related to Yardi Systems litigation, stock registration costs and acquisition-related costs.

We believe that these non-GAAP measures of financial results provide useful information to investors regarding certain financial and business trends relating to our financial condition and results of operations. Please refer to today's press release announcing our financial results for the third quarter ended September 30, 2013, available on the Investor Relations portion of our website for a reconciliation of these non-GAAP performance measures to GAAP financial results.

With that, I'll hand the call over to Steve.

Stephen T. Winn

Thanks, Rhett. Today, I'll briefly review our third quarter performance and growth drivers, provide an update on the industry and discuss acquisitions we made during the quarter.

Third quarter performance was solid, with non-GAAP on-demand revenue up 21% and non-GAAP total revenue up 20% both compared to the third quarter of last year. Adjusted EBITDA grew 27% compared to the same period last year.

We ended the third quarter with 8.7 million on-demand units, representing a 12% growth from the prior year period. Revenue per unit or RPU grew 8% over the same period last year. Annual customer value was $386 million, an increase of 20% compared to the prior year quarter.

The rental housing market continues to sustain strong performance. According to MPF Research, an independent division of RealPage, apartment occupancy for the third quarter of 2013 came in at 95.4%, in line with the prior year period. Annual revenue growth for the rental housing market, which includes the shifts in both occupancy and effective rents, was 3.2% as of the third quarter, up 3.1% in the second quarter of 2013.

Ongoing construction for the 100 largest markets in the U.S., which are expected to be completed within the next 18 to 24 months, was approximately 309,000 units at the end of the third quarter.

Moving on to our financial performance for the quarter. The top solutions that drove the most incremental revenue growth in absolute dollars were LeasingDesk, OneSite, Payments, YieldStar and Propertyware. From a percentage increase basis, the top solutions that drove the most incremental growth continued to be our SEO-enabled property websites, lead-to-lease, SeniorLiving.Net, Propertyware, Payments and YieldStar.

We haven't talked about our more mature product families for some time, so I'd like to give you an update on a couple of the big ones. First, our OneSite product family is the largest revenue contributor and our most mature product family. We continually add features and functionality to fuel growth of this product family. For example, we recently bolstered our budgeting solution so that property owners and managers can easily create, manage, distribute and monitor budgets and recurring forecasts. The result is a fully automated solution that gets beyond spreadsheet-based budgeting, providing significant time savings, robust user controls and improved accuracy. We've experienced solid traction with our budgeting solution, and during the quarter, 3 property management companies representing almost 50,000 units under management chose the RealPage budgeting solution.

In addition, we have also recently improved our commercial property management solution, and we are seeing some positive traction in this area. Specifically, during the third quarter, we signed 3 large commercial customers that bring the total square footage using our commercial solution to almost 200 million square feet. Customers have responded well to the improvements we've made around CAM recoveries or allocating common costs to tenants, the ability to tie rent to sales in mixed commercial and retail properties and automated CPI uploads as some leases include rent adjustments in line with movements in the CPI index.

While commercial is not our sweet spot historically, we do have a strategy to go after property managers and owners with diverse portfolios, and we believe our improved commercial offering, combined with our strong offering in multifamily and single family, give us a significant differentiator in the market.

Second, LeasingDesk has experienced strong, continued growth. LeasingDesk is our second most mature product family and continues to be a significant driver of organic revenue growth. As a reminder, this business includes both our applicant screening and renter's insurance solution. On the screening side, we continue to see solid growth, driven in part by the compelling differentiation we offer with our rental payment history database, which we use to calibrate our credit scoring models because this information is typically not available from the credit bureaus. This database also underscores the Big Data theme, which is integral to the RealPage story. This data took years to accumulate and the larger we become, the more powerful, accurate and insightful the data becomes.

Our renter's insurance business continued to see a tailwind from the trend towards mandated renter coverage, which started with some of the largest property managers and owners a few years ago. Mandated coverage is similar to requiring insurance to drive a car. The shift of risk results in savings to the property owner or manager because many liability claims are paid under their deductible, and renters are much happier if their personal belongings are insured, especially against damage caused by another resident. We recently retooled our renter's insurance solution to make it more attractive to the single family and seniors market.

Third, YieldStar continued to experience steady growth. Drivers of YieldStar growth were its compelling value proposition for lifting property yields and our strategy to target institutional investment firms handling real estate assets. With over 10 million units of realtime and survey data fueling the largest rental housing database of transactions, the value proposition for YieldStar has been proven over and over.

For example, during the third quarter, Pinnacle, one of the largest operators of multi-family properties, reported a 4% revenue premium to market for those units that utilized YieldStar out of a total portfolio of 136,000 units. In addition, during the quarter, several large institutional investment firms with 10,000-plus units each chose to deploy YieldStar. We continue to see institutional firms standardize with YieldStar away from alternative revenue management solutions, as our solution is based on proven results which will impact their bottom line.

Now I'd like to discuss 3 acquisitions we recently completed. First, we acquired Windsor Compliance Service -- Services, a leading provider of compliance monitoring services for the affordable housing industry. Windsor enables owners to verify income each year for residents so that they stay in compliance with HUD and tax credit rules and regulations. They also offer remediation services to assist owners that may not be in compliance. And finally, Windsor provides inspection services during due diligence to assist purchasers in understanding potential risk that they may assume in acquiring an affordable property. Windsor works with any popular, affordable property management system. Today, Windsor provides services to 30,000 apartment units, representing approximately an 85% overlap with units already using one or more RealPage products or services. There are over 3 million units in the U.S. who are potential candidates to use our compliance service, so we believe there's a large market here. The acquisition closed following the end of the quarter and did not contribute to third quarter results.

Next, we acquired ActiveBuilding, located in Seattle, Washington. ActiveBuilding enables residents to be active participants in the daily activities of a property and communicate with their neighbors. Residents can create their own profiles with specific interests, swap news, plan events, schedule play dates and send messages. ActiveBuilding also offers an unmatched capability for package tracking and delivery. Apartment communities have felt the impact of the skyrocketing online shopping trend having to facilitate the receipt, security and delivery of packages to residents. ActiveBuilding allows staff to quickly log packages into the system, automatically sends an e-mail or text notification to the resident, enables -- and enables receipt authorization via eSignature, making the entire process more efficient and secure. ActiveBuilding has a humorous video on their website, which pokes fun at the very real problem that managers of large apartments and high-rises have with package deliveries, which can be found on the website link referenced in the press release. It's enlightening how much such a mundane task is delivering packages has become such a nightmare.

RealPage already has a resident portal, so this appears to duplicate some functionality that we already have. In fact, the current transaction widgets used in our resident portal to allow residents to see their bill, pay rent, enter maintenance requests, schedule an amenity or renew their lease will be the same widgets used by ActiveBuilding. However, ActiveBuilding goes on to provide a communications platform for residents to communicate between management and other residents, manage package deliveries, buy goods and services from local vendors surrounding the community and otherwise actively engage with the community. We intend to offer both portals in the future, one targeted at apartments that prefer simply the basic functionality they need to live and receive the self-service functionality that the residents prefer; and the second targeted at apartments with more active residents who want more engaged living experiences at the apartment. Both products fit distinctive niches in the market.

Finally, in a related transaction similar to ActiveBuilding, RealPage acquired MyBuilding, located in New York City. MyBuilding provides some of the same functionality as ActiveBuilding, but their platform is intended to be used by condos and HOAs. There are approximately 26 million condos and HOAs in the U.S., so this is RealPage's first entry into this market. And we're very excited about this offering because we believe that this particular product has an international footprint.

In summary, financial performance for the quarter was solid. We continue to innovate new features and functionality that drive future growth. I'm pleased with our progress.

And with that, I'll hand the call over to Tim.

Timothy J. Barker

Thanks, Steve. During this discussion, some of the financial measures I will use are non-GAAP measures internally used to manage our operations. Our earnings press release issued earlier today provides a reconciliation of these non-GAAP measures to the most comparable GAAP item.

Total revenue for the third quarter was $99.9 million, an increase of 20% compared to the third quarter last year. The details on the components of revenue are as follows: On-demand revenue for the third quarter was $95.9 million, an increase of 21% compared to the third quarter last year; organic on-demand revenue growth was 20% during the same period; ACV or annual customer value grew 20% during the third quarter to $386 million compared to the prior year quarter. We ended the quarter with 8.7 million units, representing an increase of 12% compared to the same quarter last year.

Excluding units added through acquisition, we added approximately 750,000 unique units or an increase of 10% compared to the prior year period. Based on average units of 8.7 million, RPU for the third quarter was $44.22, an increase of 8% compared to the prior year quarter.

On-premise revenue for the third quarter was $800,000, a decrease of approximately $400,000 from the same period last year. Professional and other revenue for the third quarter was $3.1 million, an increase of approximately $100,000 compared to the same period last year.

Moving on, I will now turn the discussion to gross profit, operating expense and profitability. Our gross profit for the third quarter was $65.7 million or 65.8% of revenue compared to gross profit for the third quarter last year of $54.9 million or 66% of revenue. Total operating expense for the third quarter was $43.8 million compared to $38 million in the third quarter last year. As a percentage of revenue, operating expenses were 43.9%, representing a decrease of 170 basis points compared to the prior year, driven primarily by leverage in product development expense.

The details on the expense components are as follows: Product development expense for the third quarter was $12 million, up 7% compared to the third quarter last year; product development expense as a percent of revenue declined 140 basis points to 12% compared to 13.4% last year; discontinued leverage was positively impacted by the efficiency of our offshore development operations.

Sales and marketing expense for the third quarter was $19.9 million, an increase of 18% compared to the third quarter last year. The increase is primarily due to increased sales force headcount and related compensation, combined with online advertising activity such as search engine optimization and search engine marketing related to our lead generation services.

Compared to the prior year quarter, we added 30 sales FTEs, aggregating to a total of 220 sales reps. Sales and marketing expense as a percent of revenue was 19.9% compared to 20.2% last year. We added 7 sales reps sequentially, and we plan to have another sales class in November.

General and administrative expense for the third quarter was $12 million, an increase of 20% compared to the third quarter last year. General and administrative expense as a percent of revenue was 12% or essentially flat compared to the same period last year. The growth is primarily due to increased compensation costs related to MIS and other support department headcount growth.

Operating income for the third quarter was $20.3 million or 20.4% of revenue compared to the third quarter last year of $15.2 million or 18.3% of revenue. Net income for the third quarter was $12.1 million or $0.16 per diluted share compared to $8.9 million or $0.12 per diluted share in the third quarter of last year, reflecting 36% growth and 33% growth, respectively.

Adjusted EBITDA for the third quarter was $23.7 million or 23.8% of revenue compared to $18.8 million or 22.5% of revenue in the third quarter of last year, reflecting 27% growth and 130 basis points of margin expansion. Adjusted EBITDA margin expansion for the 9 months ended September 30, 2013, was 90 basis points compared to the prior year period.

Now turning to the balance sheet and cash flow metrics. Cash flow from operations for the third quarter was $17 million, up 90% compared to the prior year period, primarily due to higher net income and timing of other working capital items.

Cash and cash equivalents were $44 million at September 30, 2013, compared to $33.8 million at December 31, 2012. We ended the quarter with accounts receivable of $58.4 million, representing DSO for the third quarter of 56 days.

As Steve mentioned earlier, we made 3 acquisitions after quarter-end. Collectively, RealPage paid $16.8 million net of tax benefit for these companies. In addition, incremental contingent consideration payments can be earned by the acquired entities if certain performance milestones are achieved. These acquisitions will not have a material impact on the fourth quarter and are expected to contribute to our target operating model beginning in 2014.

Next, I'd like to give our outlook for the fourth quarter and for the full year December 31, 2013. For the fourth quarter December 31, 2013, we expect non-GAAP total revenue in the range of $102.7 million to $104.2 million, reflecting total growth of 20% to 22% and suggests on-demand growth of 21% to 22%; adjusted EBITDA in the range of $25 million to $26 million, reflecting growth of 24% to 25%; and non-GAAP net income in the range of $12.5 million to $13.1 million or $0.16 to $0.17 per diluted share.

For the full year ended December 31, 2013, we expect non-GAAP total revenue in the range of $386 million to $387.5 million, reflecting total growth of 20% and suggests on-demand growth of 21%. Adjusted EBITDA in the range of $90.5 million to $91.5 million, reflecting growth of 23% to 25%; and non-GAAP net income in the range of $45 million to $45.6 million or $0.59 to $0.60 per diluted share.

With that, I'll call -- I'll turn the call over to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jeff Houston of Barrington.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

It sounded like you now have about 228 total sales reps. Just curious with your comments about the commercial sector, I guess 2 parts to this, how many of those are focused on the commercial sector? And how many of your total sales reps are now fully up to speed?

Stephen T. Winn

None of our reps are focused on commercial. We sell commercial primarily to operators that have mixed-use portfolios that include both multi-family and commercial properties. So my comments on commercial were really related to our emphasis on providing a competitive offering for mixed-use portfolios.

Timothy J. Barker

On the sales reps up to speed, we would define that as reps that have been here greater than a year, and we'd be looking at it in direct quota-carrying reps, and that would be just north of 70%. Again, that will change as we bring in a new class in November. And as the reps that are -- have been here between 6 and 12 migrate past that anniversary date. But it's a more mature sales force than it was at the beginning of the year, which we think is good for the future.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Great. And then regarding the LeaseStar product, what was the growth in the quarter or bookings?

Timothy J. Barker

LeaseStar continues to be in the mid-teens. We said that Q1, we said that Q2 and it's again in Q3, and we've also said you shouldn't expect it to change in Q4. LeaseStar products that are not the old model are some of the faster-growing products. The old model is -- or the new model is greater than the old model. And we'll be anniversary-ing on the start of the decline of the iOS starting -- starts in Q1, but it's more specifically Q2 of next year. So we've had tough comps on that for all of this year. Starting in Q1, we'll start moving into easier comps. LeaseStar was actually sequentially up in the iOS from Q2 to Q3.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Great. Then last question for me is, could you provide any initial thoughts on 2014 with growth and profitability?

Timothy J. Barker

We generally give our guidance after we report Q4, but we're not seeing anything that changes our view on our target operating model, which has been 20% to 25% organic on-demand growth, with acquisitions on top of that and expanding EBITDA margins. This year, our on-demand growth has been 20% each quarter, and you'll see my guidance for Q4 was 20%. And so, at this point, we still see our target operating model at 20%, 25%, but we will update where in that range we're comfortable as we leave the year. The LeaseStar change in model on the iOS has been diluting my growth this year at least 1 point. And so that headwind will be behind us, and I'll have easier comps. But again, my specific guidance will be after Q4.

Operator

Our next question comes from Nandan Amladi of Deutsche Bank.

Jobin Mathew - Deutsche Bank AG, Research Division

This is Jobin Mathew on behalf of Nandan. You guys mentioned a lot of new products at the annual user conference earlier this year. So the budget forecasting tool, I think you mentioned Performance Analytics. So how have customers started buying these products so far?

Stephen T. Winn

Those products are moving into beta in the fourth quarter, and we will not see any revenue from production use of those until early next year.

Jobin Mathew - Deutsche Bank AG, Research Division

Got it. Okay. So I was looking at your sales and marketing spend on a quarter-on-quarter basis. So it looks like sales and marketing spend was up 1%. So I was looking at the last 2 to 3 years, it seems like this is kind of the slowest ramp on a quarter-on-quarter basis. Is that just a function of you guys having done deals in prior years? Or are you trying to slow down hiring so that you get more productivity and maturity with the existing sales force?

Timothy J. Barker

Yes. Now, when we purchased MyNewPlace for the next year, you saw a big increase in sales and marketing because of the SEO and SEM spend for the iOS, similar with the Senior Living solution, so anything that's lead-generating. And so those anniversaried, and you saw the growth come in play. And so it's -- the sales force piece of the compensation has steadily grown up or steadily grown. What you saw is that the acquisition anniversary-ing of the SEM spend is what you're, I think, what you're looking at.

Jobin Mathew - Deutsche Bank AG, Research Division

Okay. And so in the past, you've always talked about kind of your target growth model of operating between the 20% to 25% range. So looking out into 2014 without actually providing a guidance number, do you think you could step up closer to the high end of your target range?

Timothy J. Barker

Yes, we like to provide consistent guidance 1 year out and stick with providing our guidance when we have the visibility for the year. We've executed at 20% this year. Since we've gone public, the organic on-demand growth has been 22.5%. We've had periods in the 25% and periods in the 20%. We should have LeaseStar behind us, and so that drag could be a point. But we'll continue to execute on a consistent basis and drive towards our target model.

Jobin Mathew - Deutsche Bank AG, Research Division

Okay. And last question from my side. So it seems like you've done some incremental M&A late this year. Has -- how are your thoughts regarding doing some more meaningful M&A, probably something bigger like MyNewPlace, like you did -- like you guys did a couple of years ago?

Stephen T. Winn

We have an active acquisition team that is looking at many companies, and I can't comment on any specific acquisitions. We've had a fairly extended period of time where we didn't acquire anyone, and we were very pleased that we were finally able to get these 3 over the goal line. And I would expect that we will do additional acquisitions but really can't comment on any specific size or timing of when you will see those.

Operator

Our next question comes from Brandon Dobell of William Blair.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

First, just a quick one. What should we expect the size of the November sales class would look like? Should it look like the sequential adds you guys had here in Q3 or smaller, bigger?

Stephen T. Winn

We're expecting about the same size classes so...

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. And I think, back from the users' comments, there were some conversations around implementation time, kind of process changes just to make things a little smoother internally with getting customers up and running, maybe some color on where you guys are with those processes. Have you seen some of the initiatives internally start to make a difference on how customers are getting ramped up or how smooth the ramp-ups are?

Stephen T. Winn

Well, we've generally been pleased with the change we made to consolidate the service delivery under Lori Marada. But this has only been since July. So it's a little early to declare there's been a major improvement. Clearly, we're pleased with this move and intend to continue to execute it and...

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. And then, Tim, you said -- I believe that the acquisitions aren't going to have a material impact in the fourth quarter. Is that -- should we assume it's just a combination of size and the revenue recognition that are driving that? Or are they just size-wise too small to make anything more than $1 million or so of revenue contribution?

Timothy J. Barker

That's even high. I mean, they're small and they're only in for a couple of months. So it's definitely less than $1 million expected in the quarter.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. And then one thing last on the acquisitions you gave, I think for the compliance deal, you gave a 30,000 unit count. Is it safe to assume the [indiscernible] 2, the ActiveBuilding and MyBuilding, are much smaller in terms of units so the impact from the [indiscernible] unit count for Q4 from those is pretty small?

Timothy J. Barker

Yes, we expect for all 3 of them to have about 75,000 of unique units.

Operator

Our next question comes from Brendan Barnicle of Pacific Crest Securities.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Steve, as you think about Q4 and Q1, in some years, those quarters have been more seasonal. Based on what you're seeing in sort of the macro environment, do you expect that same sort of seasonality this year? Or do you think we're kind of back more normalized?

Timothy J. Barker

Yes, this is Tim. We expect to have the same seasonality. It's not large, but we do have the leasing season. It helps us in Q2 and Q3. It comes down in Q4 and then also in Q1, and that's been factored into our guidance. Based on my ACV, I'm looking at 98% visibility into the on-demand revenue at the midpoint for Q4, which is what I like to have going into Q4.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Great. And Tim, maybe I missed it, but did you give us an inorganic ACV growth number for the quarter?

Timothy J. Barker

No, but it's basically the same.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Okay. Great. I just wanted to confirm that. Let's see. And then just lastly on this -- the Windsor services business, it sounds like that one's a little more services than software. How do you plan to leverage that service piece to the kind of more profitable software side of the business?

Stephen T. Winn

I think there's some scale opportunities here that we'll realize as this business grows. It's a highly fragmented market now, serviced by a large number of small providers. And we're looking forward to bringing some efficiencies in technology and labor that scale will let you achieve. Our general rule is we -- our service businesses will carry a lower gross margin, and I would expect this one will be lower certainly than the software. But it still should be consistent with some of the other service businesses that we have or all of the other service businesses we have.

Operator

[Operator Instructions] Our next question comes from Michael Nemeroff of Crédit Suisse.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Steve, in your prepared remarks, you mentioned a product around commercial construction, kind of dusting off an old product. How much of the business currently is commercial construction? And what was the impetus for refocusing on this segment?

Stephen T. Winn

Well, it's a very small percentage of our revenue, and I wouldn't characterize it as dusting off a product. We've actually been significantly expanding the OneSite commercial offering, and it's now competitive with other commercial offerings that are on the marketplace. And we're winning in competitive heads-up competition with the best commercial software platforms on the market right now. Our focus is not commercial. We're not changing the emphasis here. We're -- we just simply want to be in a position where we have a mixed-use competition with an owner or a manager that has both multifamily and commercial properties. We can compete effectively in both multifamily and commercial spaces, which we believe we are able to do now and are really very pleased with the progress we've made with this particular product. It's still a fairly small number. We've only got 200 million square feet of commercial space that are using the system, which on the scale of all commercial buildings in the U.S., that's still a pretty small percentage of total space. But we're doing well with the product, and I thought it was worthy of discussion.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

That's helpful. And then of the units that were added this quarter, can you give us the breakdown maybe of single versus multifamily?

Timothy J. Barker

Yes, it's primarily multifamily. Let me look here.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

And then I guess while you're looking for that...

Timothy J. Barker

20,000 of the units were single family.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

20,000 single family, great. And then also, Tim, on the deferred revenue line, just looking at the long-term deferred, there was a pretty meaningful step-down sequentially from Q2 to Q3, a little north of $3 million. Could you just tell us what that was from?

Timothy J. Barker

Yes, on our deferred revenue, you see it amortize up -- it amortizes up through Q3 and then it'll build back up in Q4. So it's the timing of those contracts as they come into play.

Operator

Thank you. I'm not showing any further questions in the queue. Ladies and gentlemen, this does conclude the Q&A session, as well as the conference call for today. Thank you for your participation. Everyone, you may now disconnect, and have a great day.

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