RealPage's (RP) CEO Steve Winn on Q2 2016 Results - Earnings Call Transcript

| About: RealPage (RP)

RealPage, Inc. (NASDAQ:RP)

Q2 2016 Results Earnings Conference Call

August 03, 2016, 05:00 PM ET


Rhett Butler - VP, IR

Steve Winn - Chairman and CEO

Bryan Hill - EVP and CFO


Daniel Bergstrom - RBC Capital Markets

Patrick Walravens - JMP Securities

Brandon Dobell - William Blair & Company

Kyle Chen - Credit Suisse


Good day and welcome to the RealPage Second Quarter 2016 Financial Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference call over to Mr. Rhett Butler, Vice President of Investor Relations. Mr. Butler, the floor is yours sir.

Rhett Butler

Good afternoon and welcome to the RealPage financial results conference call for the second quarter ended June 30th, 2016. With me on the call today is Steve Winn, our Chairman and Chief Executive Officer; and Bryan Hill, our Chief Financial Officer and Treasurer.

In our remarks today, we will include statements that are considered forward-looking within the meaning of the federal 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, August 3rd, 2016 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 quarterly report on Form 10-Q previously filed with the SEC on May 6th, 2016 and our earnings release and materials distributed today. RealPage undertakes no obligation to update any forward-looking statements except as required by law.

Finally, please note that on today’s call, we may use or discuss non-GAAP financial measures as defined by Regulation G. The GAAP financial measure mostly directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP measure are included in today's earnings press release.

In addition, please reference the explanation of non-GAAP financial measures, section of today's earnings press release for more information.

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

Steve Winn

Thanks, Rhett and thank you for joining us today for our second quarter earnings call. Financial performance exhibited strong year-over-year growth. Total revenue was over $142 million for the second quarter, growing 25% over the same period last year. Subscription revenue grew 27%, of which 12% was organic and accelerated from the first quarter.

Transactional revenue grew 1% year-over-year, based on our successful efforts to shift a higher percentage of our revenue from a transactional to a subscription model. Transactional revenue now represents only 9% of our total on-demand revenue. Operating cash flow was nearly $32 million, exhibiting strong growth of 20% compared to the same quarter last year.

As Bryan will speak about shortly, we have compressed our revenue range for the year, which continues to underscore exceptional revenue traction from our resident services, property management, and asset optimization product families, but contemplate slightly lower than expected revenue growth from our leasing and marketing product family.

We expanded adjusted EBITDA margins 280 basis points, resulting in the fifth consecutive quarter of significant margin expansion, and raised our adjusted EBITDA outlook for the year.

Today, I will briefly discuss the rental housing macro environment, drivers of operational performance, an update on our recent real-world user conference, as well as changes we are making to improve organizational effectiveness to support the next phase of our growth.

Our MPF research division reported that occupancy for the second quarter was 96.2%, regaining some ground that had been lost in late 2015 and early 2016. Current occupancy matches this economic cycle's previous peak rate seen in the third quarter of last year. In fact, the only time occupancy has been tighter than it is today was at the height of the tech boom in 2000 and early 2001.

We did detect some slowing of certain markets in the fourth quarter of 2015 and in the first quarter of 2016, but the market has rebounded back since then, indicating that supply and demand are still skewed at the national level, with landlords benefiting from strong demand and constrained supply.

Second quarter rent growth on average across the country was 4.5%, down slightly from the 4.9% growth in the second quarter of last year. Annual rent change has been positive now for 24 consecutive quarters.

Ongoing building remains in line with the very high levels posted over the past two years. Properties totaling nearly 537,000 units are under construction in the nation's 100 largest metros. Product completions in calendar year 2016 are set to top 300,000 units for the first time in three decades and big deliveries are expected to continue into 2017.

With so much additional product finishing very quickly, the apartment sector's near-term performance could look a little bit bumpier than recent results. In particular, the market could briefly lose momentum when a large block of new supply is finished just as demand registers its routine seasonal slowdown in the winter months.

However, barring a drastic slowdown in economic growth, there's nothing suggesting the stock on the way is going to cause big picture changes in leasing velocity. With less renter movement, we believe our leasing and marketing product family will continue to face slight head winds over the near term.

Moving on to the drivers of operational performance for RealPage, our property management product family grew 14% year-over-year, accelerated sequentially, and now represents 28% of our total on-demand revenue. With this performance, OneSite continues to be a steady grower.

Our accounting solution continues to experience strong growth, and we recently released our enterprise accounting solution, which broadens our offering to address all asset classes.

Combined with our recent acquisition of AssetEye, these two platforms are an exciting step forward for RealPage to address the needs of institutions which traditionally have been served -- or underserved by the market.

During the quarter, our Windsor Compliance solution also achieved significant year-over-year growth, with units utilizing the platform growing nearly 70%. Lastly, our Propertyware single-family solution and Kigo vacation rental solution grew significantly year-over-year. The Kigo platform drove 4.6 million booked nights for the trailing 12 months as of June. I'm quite proud of this traction considering the size of Kigo to other much larger players in the space.

During the quarter, we also acquired eSupply Systems, which is an eProcurement and group services firm targeting small and medium-sized property managers and owners. We expect eSupply to combine with our well-established OpsTechnology spend management platform to ensure clients in every asset class and every multi-family segment have one powerful resource for optimizing operational spend.

Our resident services product family grew 60% year-over-year and represents 40% of our total on-demand revenue. This significant growth was driven by our recent acquisition of NWP, by renter's insurance, payments, portals, and our Velocity Utility Management solutions.

Clients are very excited to see the best of both NWP and Velocity platforms that we are currently integrating. We continue to make strides on the efficiency side as we track towards our goal of ensuring the NWP valuation is reduced to five to six times EBITDA post-synergies. Bryan will provide some more detail here in a minute.

Renter's insurance continues to be one of our fastest growing solutions in the company, and saw significant growth in the number of policies and earned premium. Payments also is one of the company's fastest growing solutions and is benefiting from continued industry adoption of electronic payments and our new ResidentDirect solution, which enables RealPage to collect payment processing fees directly from residents, acting in our capacity as a licensed money transmitter.

Our leasing and marketing product families, or family, declined 3% year-over-year and represents 22% of our total on-demand revenue. We expect this product family to continue to encounter slight headwinds, primarily related to a strong macro-economic rental housing environment that includes lower leasing Velocity levels.

We also continue to expect slight headwinds in our contact center business. And while the contact center grew sequentially, we are experiencing elevated levels of competition in this area.

To address this expanding competitive environment, we are developing the next-generation of our contact center, which will include a Unified Communications platform that enables prospects and residents to communicate with us using any method of their choice, whether by phone, text, email, or chat.

Clients will be able to dynamically shift prospective renters between live agents and automated agents. While we believe conversion rates will always be higher with a live agent, many clients want to tightly control their marketing budget.

A combined live agent, automated agent solution will be designed to enable property owners and managers to maximize lead capture, and at the same time optimizer their marketing spend.

Our websites and online leasing solutions both continue to be areas of strength. Website growth is benefiting from our recent innovation investments, where we vastly improved the content around 2D and 3D floor plans, as well as virtual tours. We've improved the gallery of template designs; we've optimized client implementation time, and offer website administrators much better tools and usability.

Screening, which is the largest revenue stream in the leasing and marketing product family continues to be a modest subscription grower, with the transactional element experiencing a slight headwind that we believe is related to the broader macro-economic environment where residents are moving less.

Finally, our asset optimization product family grew 16% year-over-year and represents 10% of our total on-demand revenue. Solutions in this category are benefiting from our massive repository of lease transaction data.

YieldStar continues to be a solid grower, differentiated by our ability to accurately forecast imbalances in supply and demand, down to an individual street corner, coupled with our massive repository of real-time transaction data and our data sciences team.

Our Business Intelligence product is gaining traction, with over 1 million units deployed. Owners and managers are able to pinpoint areas that need improvement with BI and generate reports and analysis in a fraction of the time that it took historically when using other business analytics or home grown tools.

During our RealWorld User Conference, several industry-leading firms shared the material impact that they are achieving by leveraging our Business Intelligence solution, citing improving efficiencies through the reduction of hundreds of man-hours in the production of key reporting, along with the ability to proactively manage their portfolio through on-demand analytics.

Another exciting area is our new Investment Analytics solution, which has garnered significant attention from large property managers, institutional investors, and lenders. This solution's strength is its superior usability, data quality, and best-in-class forecasting capability.

In addition, we recently announced market comps, which will add property-level rent comps based on MPF data, and real-time market sub-market performance from our Investment Analytics platform. This solution is unlocking a broader client base, including lenders, brokers, and research firms, because of the depth of the repository of our data.

Now, I'd like to briefly touch on some of the areas of innovation we spoke about recently in our RealWorld User Conference. Our innovation is focused on unlocking insights from our asset repository of data, as well as fostering continued adoption of our entire platform.

Lead scoring and our new learning management system are two great examples of this effort. Lead scoring enables lead nurturing, unbiased prioritization of lead management, and advanced reporting to measure the effectiveness of each ad source and leasing agent.

Lead scores are generated using information that we've analyzed from renter prospects at each step in the selling cycle. Using our massive repository of data and the vastly expanded data center capacity that we just added, we are able to statistically predict the probability that a lead will close based on where it is in the sales funnel and we can now predict the lifetime value of a prospect.

Next, our Learning Management System was -- has received a significant amount of interest from clients as new hire and associate training is an acute pain point for property owners and managers. We've begun to translate all of our product intros and release notes into video format, which makes training and compliance easy to consume and administer.

Custom business processes are also easy to incorporate, so property owners and managers can tailor their learning platform to the unique aspects of their business. We believe this solution will not only aid in new higher on-boarding and associate compliance initiatives, but also encourage increased product usage and adoption.

At our RealWorld User Conference, we also announced our expansion into Europe. Working with our largest owner/manager clients in the U.S., we have followed them overseas and are deploying much of our multi-family suite beginning in the U.K.

We are also partnering with the very largest owner/managers in the U.K. to deploy a U.K. version of YieldStar. We will be utilizing our Barcelona office that supports our Kigo vacation rental clients in Europe to offer contact center solutions and multiple languages to multi-family clients.

Finally, we're deploying a data center in Amsterdam in a co-location facility to reduce latency and improve processing performance to Europe, India, and the Middle East. While Europe is inconsequential to our revenue in the short-term, we believe we must begin to nurture certain international markets, due to the long-term significant revenue opportunity that exists, as European rental housing owners and managers are very -- are typically technological laggards compared to the U.S.

In my closing remarks, I'd like to spend just a few minutes talking about how we are structuring the company to scale, to significantly higher levels of revenue, while simultaneously expanding our margins. As we've stated in previous calls, our goal is to grow the business to $1 billion in annual revenue, with at least 30% adjusted EBITDA margins by 2020.

We expect revenue growth to be obtained through a combination of organic growth and acquisitions that meet our financial and strategic objectives. It will require a little over 15% total growth per year to reach our $1 billion goal in this timeframe. And we believe we demonstrated through our historical performance since being public in 2010 that we're capable of achieving this level of topline growth.

Disciplined expense growth is, of course, critical to expanding margins. We intend to into achieve margin expansion averaging at least 200 basis points per year in the following ways.

First, I'm pleased to report that we've nearly completed the move into our new corporate headquarters. This will consolidate four locations in Carrollton, Texas, into one central location in Richardson, Texas, which are both suburbs of Dallas.

We're also significantly reducing the size of certain remote offices by relocating positions to Texas. Through centralization, we can more easily drive process improvement and collaboration.

Second, we've completed the migration and consolidation of our primary U.S. data center operations into two third-party managed co-location facilities, with configurations that are near mirror images of one another.

With this move, we no longer operate an internal data center and have vastly increased our data processing capacity needed to support our revenue objectives and we expect to incur reduced incremental IT spend as a result of this move.

Third, we're developing a new technology framework that we expect all of our products to adopt over the next 12 to 18 months. This universal next-generation framework is expected to enable us to accelerate product development speed to market, reduce implementation and support cost, and accelerate the time it takes to integrate acquisitions.

We expect overall margin expansion derived from product development to moderate a little over the next 18 months, [Technical Difficulty] once the new framework has been launched [Technical Difficulty] our products and services.

Finally, we've historically not achieved much margin expansion from sales and marketing. Within the enterprise and corporate segments of our multi-family sales team, we're now seeing a modest decline in sales rep productivity, which leads us to conclude that we finally reached the proper balance of opportunity and sales force reach in those segments.

While we do expect to continue expanding both our institutional sales force in support of our new asset management and Investment Analytics products, and our SMB salesforce that supports smaller clients in multi-family, single-family, and vacation rental markets, we ultimately expect to focus on productivity and slow our overall sales team investments in the near-term.

As a result, for the first time, it appears that we have a compelling opportunity to expand margins, through more continued growth -- or more contained growth of this expense category than we've recently experienced.

Now, related to sales and marketing, we're delighted that Ashley Glover has accepted our offer to return to RealPage as our Chief Revenue Officer. Ashley previously served as our Chief Sales and Marketing Officer from February 2012 through December of 2013, overseeing significant new sales bookings growth and nearly 20% organic growth during her tenure.

Ashley left the business to spend more time with family, but is excited to reengage and help lead RealPage in the achievement of our long-term operating and financial goals. Ashley was an exceptional executive when she worked at RealPage and I believe she is the right person to push RealPage through our next phase of growth.

Ashley will replace Daryl Rolley, who is leaving the business to pursue other opportunities. Commuting back and forth to Dallas and his home in Atlanta, the burden on Daryl and his family was just too much. We thank Daryl for his contributions to RealPage and wish him well in future endeavors.

John Yager, Senior VP of Sales for RealPage will report to Ashley and will continue to oversee the day-to-day activities of our salesforce, like he has since 2008.

In summary, second quarter financial performance was strong. RealPage products and services driving nearly 80% of our revenue have continued to experience exceptional adoption and should continue to fuel strong revenue growth. Our adjusted EBITDA margin expansion continues to gain material traction and has resulted in raising our outlook for the year.

Our innovation engine is building to full throttle and we are in the beginning stages of improving our operational effectiveness to fuel faster innovation, continued revenue growth, and significant margin expansion during our next phase of growth towards a $1 billion annual revenue goal and $300 million of adjusted EBITDA.

With that, I'll turn the call over to Bryan.

Bryan Hill

Thanks, Steve and good afternoon everyone. Q2 financial performance was strong. We achieved 25% total revenue growth, 43% adjusted EBITDA growth, representing 280 basis points of margin expansion, and 50% non-GAAP EPS growth.

Q2 marks the fifth consecutive quarter of significant margin expansion. This performance provides the confidence to raise our full year adjusted EBITDA and non-GAAP EPS target, which I'll speak about shortly.

The second quarter evidenced continued success from our capital allocation strategy. As you will recall, we seek the most efficient sources of capital available to us and deploy that capital across internal investments, acquisitions, and our share repurchase program.

These areas are prioritized based on their ability to drive the most compelling risk adjusted returns for our shareholders and acquisitions have historically played a vital role within this framework.

During the first half of 2016, we have deployed $71 million of capital for the NWP, AssetEye, and eSupply Systems acquisitions, $21 million of capital to repurchase shares, and nearly $39 million of capital for internal investments, of which $28 million are one-time investments related to our new corporate headquarters and data center moves.

Free cash flow return on invested capital is an important metric we utilize in understanding our success in deploying capital. During the quarter, this metric exceeded 25%, an impressive level when considering many of our peer comps are in the low teens, if measurable at all.

Our success extracting cost synergies and driving revenue synergies from the acquisitions of Indatus and NWP are playing a significant role in this metric. And we expect similar success over time with our recent acquisition of AssetEye and eSupply.

On the revenue side, we are encouraged during the quarter by significant smart source new sales booking of over $1 million. If you recall, smart source is out-sourced accounting and IT solutions that was part of the NWP acquisition.

An existing RealPage client possessing 14,000 units and RPU of approximately $80 found the smart source solution a compelling method for converting a fixed cost structure to variable and improving quality. Once fully activated on the smart source solution, this client will be a part of RealPage's top 50 RPU clients.

On the expense side, since acquiring Indatus in June of last year for approximately 20 times EBITDA, one year later, we have now achieved a run rate valuation of six to seven times EBITDA.

Similarly, we've made tremendously progress realizing NWP synergies and expect a valuation range of five times to six times EBITDA on a run rate basis as we exit 2016.

For both of these acquisitions, expense synergies have been and will continue to be driven by labor optimization, product development, efficiency, optimizing vendor relationships, and removing identified redundancies. We have built vertical specific expertise, integrating and unlocking value over time, with 35 acquisitions under our belt.

We're proud of our acquisition track record and believe we are uniquely positioned from a market and institutional knowledge perspective to continue to acquire successfully. We believe 20% plus free cash flow return on invested capital not only underscores our success with acquisitions, but our capital allocation strategy as a whole.

Now, we'll provide you more details into our operational performance. On-demand revenue for the second quarter grew 24% compared to last year. Our subscription revenue stream grew 27% compared to the prior year and represented 91% of on-demand revenue. Revenue growth was driven by the acquisition of NWP and strong adoption across our property management, resident services, and asset optimization product families.

Annual client value grew to $549 million, or 21% compared to the prior year. Our top 100 ACV clients possess an average RPU of $70. We ended the quarter with 11.1 million units, representing an increase of 8% compared to the same quarter last year.

RPU was over $49, an increase of 12% compared to the prior year. Our top 50 RPU clients possess a RPU range of $130 to $330, with an average RPU of $172. Our average RPU for top clients is 3.5 times as penetrated as our average RPU of $49. The top 50 RPU clients include a diversified representation of our enterprise, corporate, and SMB sub-markets.

Moving on to profitability for the quarter. Profit performance continues to exceed our expectations. Our expense discipline and operating scale is driving adjusted EBITDA margin expansion, and significant EPS growth. Gross margin was 63% for the second quarter, down [Technical Difficulty] last year.

However, gross margin was diluted 220 basis points by the acquisition of NWP. Excluding NWP, gross margin expansion of 110 basis points was driven primarily by scale and efficiency gains from our fixed cost of revenue areas such as IT. Our true variable costs represent approximately 20% of total revenue, allowing us to leverage fixed cost areas.

Total operating expense grew 15% compared to last year and as a percentage of revenue, it declined 380 basis points to 43%. With respect to the individual components of total operating expense, product development grew 10% compared to last year and as a percentage of revenue, it declined 160 basis points to 12%.

The primary driver of expense growth was incremental headcount related to NWP, investments related to our Business Intelligence, Investment Analytics and Propertyware solutions, as well as next-generation innovation and development related to areas discussed by Steve.

Sales and marketing expense grew 14% compared to last year and as a percentage of revenue it declined 190 basis points to 19%. The primary driver of expense growth was incremental cost from NWP, combined with the 2015 and Q1 2016 investments in the RealPage sales team.

Sales team headcount was 396 at the end of the second quarter, up 51 sales team members, or 15%. The SMB and lead generation teams represented the majority of our headcount investment, while NWP added 14 members to the team.

Consistent with my commentary last quarter, we expect to slow our overall sales team investment and focus on driving productivity. As a result, we expect more leverage from sales and marketing than recently experienced.

General and administrative expense grew 22% compared to last year, but as a percentage of revenue, it declined 30 basis points to 12%. The primary driver of expense growth is incremental costs related to the NWP acquisition. Also contributing, albeit at a much lower pace, is increased personnel cost to support growth initiatives across the company.

Non-GAAP net income for the second quarter was $13.9 million or $0.18 per diluted share. Adjusted EBITDA for the second quarter was $30.7 million or 21.5% of revenue, representing 280 basis points of margin expansion.

Q2 marks the fifth consecutive quarter of year-over-year margin expansion and we expect to continue to yield further margin improvements. It's important to note, NWP was 120 basis points diluted to our current adjusted EBITDA margin. However, we expect NWP to contribute to margin expansion as we continue to integrate its operations and exit 2016.

Moving to cash and liquidity. Cash and cash equivalents were nearly $47 million at June 30th, 2016 compared to $31 million at December 31st, 2015. Cash flow from operations for the second quarter was approximately $32 million, representing growth of 20% compared to last year.

Our cash flow performance benefited from a $2.4 million recovery of tenant improvements related to our new corporate headquarters combined with continued strong DSO performance at 50 days.

Total debt was $124 million. Higher debt levels reflect Q1 2016 actions to improve our capital structure, which included a $125 million term loan that increased our total borrowing capacity to $325 million under our existing credit facility. As I mentioned earlier, we continually seek cost-efficient sources of capital to fund our capital allocation strategy.

Capital expenditures for the quarter were $28.3 million. The primary use of capital were build-out of the facility, furniture and equipment related to our new corporate headquarters.

Total CapEx does not reflect the $2.4 million we received as a tenant improvement reimbursement related to our corporate headquarters move. We still expect elevated CapEx in the third quarter coinciding with this move to be completed by September 1st, 2016.

CapEx should return to normal levels and decline significantly in the fourth quarter. Our longer term objective is to manage capital expenditures to no more than 5% of revenue.

During the quarter, we repurchased approximately 235,000 shares of our common stock and program-to-date; we've purchased nearly 3.8 million shares. As I previously discussed, share repurchases represent an important part of our capital allocation strategy.

Now moving to guidance. For the third quarter of 2016, we expect the following: Total revenue in the range of $146 million to $148 million, adjusted EBITDA in the range of $31 million to $32 million, and non-GAAP EPS in the range of $0.18 to $0.19 per share.

For the full year, we expect total revenue in the range of $567 million to $573 million; adjusted EBITDA in the range of $122 million to $125 million, which represents a raise of $4 million and $2 million on the low and high end respectively, since we issued full year 2016 guidance at the beginning of the year; and finally, non-GAAP EPS in the range of $0.71 to $0.74, a raise of $0.03 and $0.02 on the low and high end, respectively, since the beginning of the year.

And now I will open up the call for any questions.

Question-and-Answer Session


Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions]

The first question we have comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Daniel Bergstrom

Yes, hi. Thanks for taking my question. It's Dan Bergstrom for Matt Hedberg. So, just a question on the smart source win that you called out. So, you just acquired NWP $60 million and you just did the $1 million deal, I mean was that type of win expected? Are there other opportunities such as this out there? Maybe not $1 million ones, but do you have a sense of how many customers could use a solution such as this? And then maybe the penetration rate across the customer base?

Steve Winn

So, when we acquired NWP, we saw several different opportunities with the acquisition. One was the combining of two of the largest resident billing operations in the multifamily industry which we knew that we could extract significant operating synergies from.

But also what came with NWP was a couple of service offerings which smart source was one that we had the opportunity to sell across the RealPage client base as well as just clients at large and that's what smart source represents.

What excites us about this and what makes it so compelling is how quickly we were able to cross-sell this type of opportunity with $1 million ACV value which is significant across a RealPage client. We think there's additional opportunities, some larger, some smaller, but we're actually encouraged by the initial revenue synergy related to the NWP acquisition.

Daniel Bergstrom

That's great. And then you noted some slight headwinds in the contact center in leasing and marketing, there's been some softness on the transaction side with lower leasing Velocity, has there been any change here since last quarter or are you just calling them out again?

Bryan Hill

No, I think the headwinds have existed for some time. We actually were encouraged when we looked at the fourth quarter of last year and the first quarter of this year that we were seeing some softening in some markets, but in the second quarter that market really bounced back and we still see an imbalance with much more demand than we have supply.

I do think you'll see some weakening in the third and fourth quarter because there's so much new supply coming on stream with a period of time that is seasonally low for renting.

So, third and fourth quarter should be a little bit more relaxed, but our prediction is that by the first, you're going to see the market rollback and we're going to continue to see headwinds in this area and we're not in a position to predict when that's going to turn.

With respect to the contact center, this has been an area of competitive activity and our approach to it has has been to innovate some new capabilities that I think RealPage is in a great position to offer, particularly with the acquisition of Indatus which was an automated -- answer automation tool that was used for maintenance service request.

We're expanding tool that to also address leasing calls and building their capability where clients for the first time can actually set their budget for the contact center and the system will dynamically move from a live agent to an auto agent and hit the exact budget that the customer is requesting.

In the past, we've had to bill for over just if they ran over the allotment that we -- that they agreed to pay for and that's always been a sore spot with some clients and now, it won't be, because they are in complete control of how they manage the contact center.

Daniel Bergstrom

Appreciate the color. Thank you.


Next we have Patrick Walravens of JMP Securities.

Patrick Walravens

Great. Thank you. So, two questions. My first question would be nice to see Ashley rejoining the company. If you could remind us why she left and then what plan she has in rejoining that would be great.

And then my second question I'll just put out front is, Steve under what circumstances would you consider doing sort of a bigger consolidating acquisition in this space?

Bryan Hill

Well, let me start with Ashley. We're extremely disappointed when we lost Ashley. She wanted to spend more time with her family. Her kids were at that age where they really want to be around them and so she went back to be with her family.

She also started a consulting firm because Ashley is a hard-driving ambitious Executive and invested in apartment real estate and also was consulting with some of our largest clients.

So, we never really disengaged with Ashley, she was always there. And when she suggested that she was ready to come back to RealPage, we jumped on the opportunity and I couldn't be happier about her participation at a very senior level. She's got both the sales marketing and customer-facing operational portions of the business and I think she'll do very well.

Second question really -- I believe was would we consider a large -- larger consolidation? We'll consider any consolidation that makes sense. We just haven't been able to make the economics work for deals above about $70 million or $80 million. I think we've had two or three of those, but hope springs eternal. Maybe it will happen someday.

Patrick Walravens

Okay, great. Thank you.


The next question we have comes from Brandon Dobell of William Blair.

Brandon Dobell

Thanks. Maybe first on NWP, any sense of what the impact of the deal was on this quarter's unit growth and RPU growth or just trying to get back to some organic number for both those metrics as well as overall revenue? It is fair to assume that the contribution was similar to what it was last quarter.

Bryan Hill

It's slightly different Brandon. Unit growth -- so NWP contributed 220,000 unique units of properties that were not currently being managed with one of RealPage's products. And so for the quarter, we had total unit growth of 8% and organic unit growth would be 6% once you factor in those 220,000 units.

Brandon Dobell


Bryan Hill

From an RPU perspective, total RPU growth was 12% and organic RPU growth was 4%. So, what drove the higher total RPU growth was the crossover in clients because NWP possessed approximately 1.2 million units under management with their product and services. So, we had 1 million units of overlap with RealPage.

Brandon Dobell

Got it. Okay. And then as we think about the back half of the year, revenue-wise, a couple of questions. You mentioned in leasing and marketing continued headwinds, safe to assume that revenue line just kind of bounces around this $29 million number. I know there's a little bit of seasonality here, but is that a fair assumption?

And underneath the surface there, it sounds like there's some things that are going okay and some things that are not relative to your expectations. What combination do have in place if it need to drive the ones that are really underperforming, how do you get those back on track?

Bryan Hill

Okay I'll speak to the back half of guidance and then allow Steve speak to the more strategic side of the service offering. In the back half, what we're expecting is revenue growth to be exactly where you were indicating this revenue level that is in at that $29 million range. So, flat to slightly up depending on the quarter.

If you recall as we entered into 2015, we had three consecutive quarters of revenue growth, albeit in that 5% range, which led us to believe combining that with the market data that was available at the time that we would expect leasing and marketing to have some success growing in 2016.

And now we're on two quarters of negative growth, so it certainly had an impact in our thoughts as we were preparing our guidance for the back half of 2016. But expect that to be flat to maybe slightly up at the high end of guidance and flat to slightly down at the lower end of guidance.

Brandon Dobell

All right fair enough.

Steve Winn

With respect to the strategy, this is 22% of our total revenue. There are a number of products that are part of this category; some are performing better than others. One of the large ones, of course, is our contact center and I'm actually encouraged that the contact center is going to perform well, particularly in light of some of the new enhancements that we're making to that service offering.

We're seeing strong adoption of our websites and online leasing. So, I'm very encouraged by that. So, we're not giving up on leasing and marketing. We think this is a huge TAM [ph] and we want to continue to play and the space. Of course bundling is the key to the way you compete competitively because we have such a broad sweep of leasing and marketing products.

Brandon Dobell

Got it. Okay. And then final one from me, splitting hairs a little bit, but the professional and other line, pretty nice pickup year-on-year as well as quarter-on-quarter. Maybe some color behind the growth rates both year-on-year and sequentially and how we should think about that line in the back half of the year if there's anything that's going on there that's early driving that growth higher versus just some discrete items? Thanks.

Steve Winn

Yes Brandon it's really just the acquisition of NWP that's driving the sequential and year-over-year growth. NWP includes either installation business and while it's project-oriented -- pipeline and continues on about the same pace. So, you get [Technical Difficulty] bump in Q3 related to our [Technical Difficulty] revenue that occurs related to that [Technical Difficulty] Q4 back more in line with Q2. So, not a lot of news there just really NWP driving some of the year-over-year [Indiscernible].

Brandon Dobell

Got it. All right. Thanks a lot.


[Operator Instructions]

Next we have Kyle Chen with Credit Suisse.

Kyle Chen

Hi, thanks for taking the question. I'd like to spend a little bit of time on the asset optimization family. It looks like it grew pretty nicely again this quarter. Just with the Investment Analytics solution as well as your recent acquisition of AssetEye, you talked about opening up a new set of customers, institutional lenders.

I guess do you feel that with an increase in mix of analytics products that helps diversify your revenue stream that's maybe not so dependent on unit growth? And then how do you internally think about the potential TAM [ph] and caller opportunity here with analytics portfolio?

Steve Winn

The segment this opens up is anybody that is interested in improving their view of the acquisition or disposition of a multi-family asset. The Investment Analytics product is intended to give the much better visibility into the performance of say a sub-market or even down to a street corner five years into the future and based on that information, you could make a more informed decision with respect to the buy -- buying or selling of an asset.

There's a lot of churn in the multi-family and [Technical Difficulty] side of the business and there's many, many different constituents that have a very critical need for the information that we're providing. [Technical Difficulty] sized this opportunity yet, and we're not finished with the suite of products that we're developing to service this particular market. But we do think it's a big untapped opportunity for RealPage and it's one we're very, very acutely interest in.

Kyle Chen

Got it. That's helpful. And I guess what the addition of AssetEye, again new group Institutional Asset Manager customers, I guess is there an opportunity to get owners to push property managers of their assets to standardize on RealPage property management products, kind of in the spirit of streamlining data aggregation and ultimately sell more property management deployments?

Steve Winn

Yes. I think if an institution prefers to standardize, they can have an influence on the fee managers. Candidly, though, this is the tail wagging the dog. You don't want an institution dictating to a fee manager what operating platform they use. What you want is to be able to present reports to the institution that are identical regardless of what property management solution you're using at the site. You want to be PMS agnostic.

And that's what AssetEye does. It will aggregate data from any property management system on any asset class and it will allow an institution to see metrics presented uniformly for an entire portfolio of multiple asset types.

So, can an institution influence? Yes, but I think we're actually promoting the notion that this is not something an institution should do with the operating platform is up to the owner/operator.

Now, we do recommend that they dictate one operating change and that's YieldStar. YieldStar is a product that will produce exceptionally high NOI improvements by driving or optimizing revenues.

So, a fee manager may not have an incentive necessarily to incur all the effort to implement YieldStar because they may only get 3% of the revenue left. An institution, on the other hand, is getting 97% of that revenue lift, so they are extraordinarily interested in deploying the best possible yield management or revenue management system and in this area, we're unmatched. We have more data to base our statistical modeling on than anyone in the industry and the YieldStar is widely adopted and pushed by vast majority of the large institutions.

Kyle Chen

Got it. That's really helpful. Just a quick one for Bryan. I guess do you still expect NWP to do $45 million to $50 million in 2016? And also how much revenue do you expect the supply in AssetEye to contribute in this year?

Bryan Hill

Yes, so our view on NWP has not changed from the beginning of the year, so we're still thinking in terms of $45 million to $48 million. As it relates to the AssetEye and eSupply acquisition, I mean these are fairly small acquisitions, each of them with pretty small run rates of revenues. So, in the back half of the year, we would expect less than $1.5 million contribution of those two acquisitions combined.

And Kyle just one clarifying point in your conversation on asset optimization, AssetEye is actually reported as a part of property management. We view that even though it is selling into the institutional client base, we view it more as an extension of our accounting and commercial offerings. And so that's where we report that. And during the quarter, there was only approximately a month and a half of revenue contribution from that acquisition. So, it was approximately $100,000.

Kyle Chen

Got it. That was really helpful. I appreciate the color.


I see no further questions at this time; we will go and conclude today's conference call.


We would like to thank the management team for their time today and we thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you. Take care. And have a great day everyone.

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