Reis, Inc. (NASDAQ:REIS)
Q2 2016 Earnings Conference Call
August 04, 2016 11:00 AM ET
Lloyd Lynford - CEO
Jonathan Garfield - Co-founder, EVP of Reis
Bill Sander - President, COO of Reis Services
Mark Cantaluppi - CFO
Ian Corydon - B. Riley
Michael Graham - Canaccord
Matt Blazei - Lake Street Capital
Good day, ladies and gentlemen. And welcome to the Reis Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded.
I would now like to introduce your host for today’s conference, Mr. Lloyd Lynford, Chief Executive Officer. Sir you may begin.
Thank you. Good morning and this is Lloyd Lynford, President and CEO of Reis. Joining me on our second quarter 2016 conference call are, Jonathan Garfield, Co-founder and Executive Vice President of Reis, Bill Sander, President and COO of Reis Services, Mark Cantaluppi, Reis’ Chief Financial Officer, and other members of Reis’ senior management team.
First, I need to provide our legal disclaimer. Today’s comments may include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in those forward-looking statements. These statements are based on currently available information and include current management outlook or expectations, including an outlook for full year 2016 and early indications of fiscal 2017.
In addition, we do not plan to update any forward-looking statements to reflect subsequent events or circumstances or if our expectations change. For more information relating to the risks and uncertainties involved in our forward-looking statements, and the company generally, please see the Risk Factors and cautionary statements regarding forward-looking statement section of our recent filings with the SEC, including our June 30, 2016 quarterly report on Form 10-Q issued earlier today and our annual report on Form 10-K for the year-end December 31, 2015.
This call is being broadcast live over the Internet and will be available for replay for a period of time following the call. A link to the webcast of this call, as well as information on the replay, is available www.reis.com/events. Our earnings press release and Form 10-Q were both issued this morning, and can also be found at the Investor Relations portion of our website.
Today’s call will include my comments on Reis’ financial and operational results. I will then ask Mark to review our financial performance for the second quarter ’16. After Mark’s comments, we will open the telephone lines for analysts’ questions.
Reis’ second quarter financial results reflected the anticipated decline in revenue that was previously discussed in our quarterly earnings calls. Revenue for the quarter totaled $11.6 million, compared to $13.4 million in 2015 second quarter. Mark will provide more details that these results later in the call.
As you recall, last year’s exceptional results were primarily driven by a contract for a custom day-to-days deliverables to a major financial institution. That contract contributed approximately $2.2 million of revenue. On a pro forma basis without the impact of that contract revenue in the second quarter of 2016 grew by 3.4%. First half 2016 growth also adjusted for this custom data deliverables grew by 3.9%. Well, this pro forma growth rates are below the double-digit levels Reis will enjoyed over the last five years. We believe that with 2016 investment and people new product launches at a record pay and new space to support our higher initiatives that Reis will return strong growth in 2017.
Based on a many new product enhancements we had and will continue to launch this year and the ongoing expansion of our sales force. I’ve never been more confident in Reis’ competitive division and prospects and Reis remains highly profitable. Reis Services EBITDA in the first half of 2016 totaled $9.5 million representing an EBITDA margin of 39%. In the second quarter, Reis Services EBITDA totaled 4.1 million or 35.5% margin. We remain debt-free with $26.6 million of cash. It is important to put the first half of 2015 and 2016 in profit perspective. When we first discuss the contract for custom data and our second quarter of 2015 disclosures, we know that there was a reasonable likelihood, that the customer would require update for those data sets and therefore future and recurring revenue could be generated by providing these updates. In fact, we were accurate in our assessment. The customer returned for a custom deliverable of updated trends and forecast in December of 2015.
Further, in the second quarter of 2016 the client entered in some ongoing contract for a subset of their original data request. The revenue from which will be recognized rapidly, no differently than a traditional [indiscernible] contract. Together these three contracts support our initial and ongoing view that the delivery of Reis states for internal risk management model represents an opportunity not only for incremental revenues, but a valuable expansion of the core recurring revenue model that has long represented over 90% of Reis’ revenue base.
This perspective on these contracts is an important statement with respect to Reis’ relative performance in 2016, as well as growth prospects as we move into 2017. If we consider that the 2015 contracts or custom data has been recognized ratably, Reis growth in both 2015 and 2016, which show remarkable double-digit consistency rather than being modest in the first half of 2016 versus the extremely robust growth rate reported in the first half of 2015.
So what did we achieve. We have successfully converted to subscribers ad hoc data request from a contract that has been immediately recognized as revenue into a subscription that meets the subscribers ongoing data needs and it will be recognized ratably and predictably. Plus we have strengthen our recurring revenue business model while productizing important portfolio services module responsive to the needs many of our institutional subscribers.
I’d like to turn to a discussion of why I believe Reis’ positioned for robust growth in 2017. During our last call, I described Reis’ two-pronged strategy of adding more properties and more property level detail to four to five support for the front-line of transactional commercial real estate. Well simultaneously adding broader, higher level capabilities for the benefit of portfolio managers and C-suite executives, who must maintain a comprehensive perspective across all U.S. sectors and geographies. I’m pleased to report that in pursuit of these goals Reis has continued to meet the high expectations set by our long history of regular significant enhancements to reset [indiscernible].
Following up on the success of our new apartment rent comparables released in early 2016. In May, we applied the same principals of property level detail and reports design for our office rent comparable supports, which now include among other new elements photograph, contact information, comparative performance history for the subject property and each of its peers and a written description of current sub-market conditions. In the coming months, we will make similar improvements to the rent comparable supports for other property type taking care to accommodate the unique data structure of each new sector.
Similarly it has become routine, our sales comparable analyst have added to our transaction record a slate of new details pertaining to property taxes with [indiscernible] and assessment as well as additional structural attributes. For those who wish to include enhancements to pitchforks [ph], loan packets and Board room presentation. Our customizable executive briefing reports and our property levels investment analysis are now provided in three column magazine layout.
As usual at Reis we like to address multiple used cases to ensure that we add value to as many job functions as possible and so for those who wish import the of contents of these reports into their company’s internal systems, documentation processes or other specialized format we also now provide executive briefings and investment analysis in editable text format.
Before announcing the two of the significant product advances that we’ve made in our last call, I would like to pause briefly to discuss why Reis is in a unique position to continue to make such progress. In recent years meant would-be competitors such as startups or long established businesses other than the provision of commercial real estate data, have attempted the shortcut the absolute necessity of performing research primarily by a direct engagement with individuals knowledgeable about particular properties. Trustworthy actually research is not the incidental byproducts of a separate primary line of business, such as a listing service nor is it the result for the mere aggregation and information available from questionable public records or online sources.
Likewise the volunteer contributor model, in which brokers trade one-of bits of deal information. As dealing of this model must be to startups, who have no property level of history and limited industry contacts will fail against the single purpose dedication that is Reis’ level. Well other companies attempt to compete with Reis by taking a flyover and drive-by approach to understanding the commercial real estate market and unfortunately, I mean the flyover and driver-by literally. Reis continues its long standing history of direct proactive engagement with property owners and managers employing vigorous quality control measures that challenge questionable property level observation all for the straight and sole purposes helping our client better understand market, trends and property performance and make more profitable decisions more quickly.
Lastly week this disciplined bore were two particularly notable fruits for our clients. First we began allowing information that to present day [ph] we have collected everyday on apartment properties to flow daily into our apartment rent comparable reports rather than waiting for the monthly or quarterly publication date. We expect real time rent comparable to appeal to property owners and managers taking immediate pricing decision in local markets. Well higher level portfolio managers and C-level executives will continue to take the longer term view reported by our trusted monthly and quarterly trends and off course by our long term forecast.
Finally in terms of releases since the previous earnings call, earlier this week we launched coverage of low income housing tax credit for LIHTC properties on 176 Counties, covering 45 major U.S. metropolitan areas. And to a robust market were information needs were until this launched served as [indiscernible] 1995 by adding those in scanned public information. Reis has launched standardize nationwide market and sub market reports, rent comparables, sales comparables and new construction coverage. I can tell you that the interest in this sector has been very high amongst our clients and prospects, many of whom participated in research interviews with our product development and client’s services teams as Reis is developing the product specification.
Looking ahead we see no abatements in our pace of product development. Before our next earnings call, we’ll release sales comparables beyond our metro and sector boundaries. Essentially covering all properties transactions in the nation, thus further establishing Reis is the under assailable leaders for all commercial real estate and professional needs. We’ll also release the market renting and selection model that I described to you on the last call. A model that quickly reveal sub markets of investment opportunities among the thousands across the nations and across all of our factors.
Quarter-after-quarter and year-after-year Reis demonstrates its commitment to innovating, advancing its products through highly disciplined routines and technology in which quality assurance is permanent. I can assure our subscribers and shareholders that we will continue along this path of staying [indiscernible] and determination and strong results in the quarters and year to come. We believe that the market for commercial real-estate information and analytics is expanding. As more capital from multiple sources enters and competes for debt and equity opportunity. The proliferation of non-bank lenders and smaller but well capitalized equity funds have been two notable areas of growth in recent years. While there may be quarter-to-quarter or year-to-year variability with respect to transaction volume or the issuance of commercial mortgage backed securities, Reis has a long track record of having expansive suite of products that serve investors in all markets, as we roll out a series of new products and enhancements I have discuss today, as we add to our sales leadership and sales force into our market initiatives Reis continue to provide our subscribers with best of Reis’ information and analytics.
We look forward to updating you on the progress of our initiatives and financial results. Thank you for your sustained support of our company and our vision.
Let me now turn the call over to Mark Cantaluppi.
Thank you, Lloyd. Good morning, everyone. I will be presenting and discussing Reis’ second quarter and year-to-date June 30, 2016 results this morning, which are more fully described in the financial results press release and Form 10-Q issued earlier today. In the second quarter of 2016 subscription revenue aggregated $11.6 million, a 13.4% decrease from 2015 second quarter revenue of $13.4 million. For the six months ended June 30, 2016 revenue aggregated $24.4 million, 0.4% decrease from the 2015 period of $24.5 million.
Consolidated income from continuing operations for the second quarter of 2016 was $941,000 or $0.08 per diluted share, this is a decrease from the 2015 sector quarter income from continuing ops of $2.9 million or $0.25 per diluted share. For the six months ended June 30, 2016 the income from continuing operations was $2.5 million or $0.22 per diluted share. This is a decrease from the 2015 period's income from continuing operations of $4.2 million or $0.36 per diluted share. The company's consolidated net income was $941,000 in the second quarter of 2016 or $0.08 per diluted share, a decrease from net income for the second quarter of 2015 of $4.1 million or $0.35 per diluted share. For the six months ended June 30, 2016 consolidated net income was $2.5 million or $0.22 per diluted share, this was a decrease from the 2015 period’s net income of $5.3 million or $0.45 per diluted share.
The second quarter and 2016 year-to-date periods are difficult comps against our outstanding 2015 performance. 2016 revenue, income from continuing operations and net income as well as EBITDA which I will get to in a moment, when compared with the respective 2015 amounts have all been impacted by four main factors. One, significant custom data deliverables of 2015 as Lloyd addressed in his earlier remarks, two, a decline in our TTM renewal rates, three, a reduction in revenue from our intellectual property compliance initiatives, and four, multi-year contracts and their effect on growth rates.
As I stated on our first quarter earnings call “we likely will experience a decline in revenues from the second quarter of 2015 to second quarter of 2016 on an actual basis, but expect growth from 2Q 2015 to 2Q 2016 on a pro forma basis”, and I has played out this way. Regarding the impact from the significant custom data deliverables and today's Form 10-Q as well as the entire 10-Q filings and in our 2015 10-K filings we presented 2015 revenue on a pro forma basis, adjusting the three and six months ended June 30, 2016 reported revenue by $2,186,000 and for purposes of comparison adjusted the year-to-date 2016 revenue downward by 2 million for follow-on custom data delivery in that period.
On a pro forma basis revenue grew 3.4% and 3.9% in the second quarter year-to-date 2016 period over the 2015 period reflecting modest core revenue growth. The company’s trailing 12-month renewal rates were 83% overall and 85% for institutional subscribers, as of June 30, 2016. The decline in the renewal rates from our reported rates at June 30, 2015 of 86% overall and 90% for institutional subscribers reflects our position of being more aggressive on renewal pricing.
As I have discussed in the past few quarters, we have taking this more aggressive stance on renewal pricing, particularly in instances where customer usage levels are significantly greater than what was initially estimated as annual usage for that customer. We believe that aligning client report consumption and value with appropriate annual fees is critical to the company’s long-term growth and the protection of the value of our intellectual property. On average, these efforts have results in mid-single-digit renewal increases in 2016.
Reis’s 2016 revenue growth reported to date have been constrained by a reduction in the dollar value of contract signings related to violations of our intellectual property rights. In 2015 and 2016, the company has been very active in protecting its intellectual property by defining firms and individuals with unauthorized access to our services. The company has been able to generate revenue either through settlement payments or by signing up the offending firm or individual to an annual or multi-year Reis subscription.
During 2016, revenue from these activities has decreased from the 2015 levels as a result of resolving much of the backlog of instances involving older and longer periods of non-compliance which had greater dollar values associated with the larger volume of unlicensed usage. Nonetheless, new violations are being identified each week creating new recurring revenue opportunities.
In order to increase the predictability of fees from our subscribers and Reis’s own revenue and cash flow, we have made a concerted effort to encourage multi-year contracts when appropriate, with terms of two or three years, and in some cases, four years. Approximately one-third of our subscribers have multi-year contracts and the average life of those contracts signed in each of the last three years was approximately 2.2 years. There are significant benefits, on a selective basis, of multi-year contracts, including locking in recurring revenue for longer periods to providing us ongoing opportunities or a sales force, insulating us from competitive pressures and increasing the likeliness that Reis data and analytics will become embedded in the work flow of our clients.
In accordance with GAAP, our revenue recognition policy is to record revenue ratably over the life of a subscriber contract. Therefore any increases in the price subscription after the first year of a multi-year contract are considered in the total amount being straight-lined over the contract term. When a multi-year contract includes pricing steps on and after the first anniversary, there will be increasing cash flow from the contract, but no growth in revenue during the subsequent years under that contract. There has been resulting variability in our growth rates from having such a significant segment of our subscriber base under multi-year agreements which has place downward pressure on our 2016 revenue growth.
Reis’s management utilizes and monitors performance measures such as revenue, deferred revenue, aggregate revenue under contract, EBIDTA and adjusted EBITDA. EBITDA is income from continuing operations before interest, taxes, depreciation, and amortization expense. Adjusted EBITDA is EBITDA before expenses related to non-cash stock-based compensation.
I would like to refer you to the cautionary language included in the MD&A of our quarterly reports on Form 10-Q and in our earnings release, both issued earlier today about the use of EBITDA, adjusted EBITDA and aggregate revenue under contract as non-GAAP measures. And the reconciliations of income from continuing operations to EBITDA and adjusted EBITDA for the respective periods and deferred revenue to aggregate revenue under contract as of the respective balance sheet dates. These cautionary statements and reconciliations apply to all references made to these metrics on this call today. In addition, we present EBITDA and adjusted EBITDA on a segment and consolidated basis.
Reis Services EBITDA was $4.1 million in the three months ended June 30, 2015, a 32.3% decrease from the 2015 second quarter amount of $6.1 million. Reis Services EBITDA in the six months ended June 30, 2016 was $9.5 million, an 11% decrease from comparable 2015 period of $10.7 million. These decreases were primarily derived from a decreases in revenue I previously discussed coupled with current year expense growth.
Reis Services operating expenses grew by 2.2% and 7.7% in the three and six months ended June 30, 2016, as a result of increases in compensation occupancy related costs, marketing initiatives and professional fees in connection with the IP protection and compliance initiatives. We are reporting margins for the Reis Services segment 35.5% and 38.9% for the three and six months ended June 30, 2016, respectively. Consolidated adjusted EBITDA for the three months ended June 30, 2016 was $3.7 million, a decrease of 32.1% from the 2015 amount.
Consolidated adjusted EBITDA for the six months ended June 30, 2016 was $8.3 million decrease of 10.6%.The consolidated adjusted EBITDA margin was 31.4% and 33.9% in the three and six months ended June 30, 2016. The company continues to make significant investments in the business including our four resetting [ph] platform and in our tool kit of portfolio analytic offerings. As a result of our investment growth initiatives, we expect complete headcount increased throughout 2016 across all departments including strategic hires in sales, sales managements and operations.
The pace of our database and website enhancements has accelerated and we remain committed to a rigorous schedule of product development during the remainder of 2016 and into 2017. These prudent investments will further the differentiation between Reis and other U.S. commercial real estate market information providers. With the growth in headcount it came necessary to lease additional office space. We now have approximately 48,000 square feet of space in White Plains for our operations team.
In addition with upcoming October 2016 expiration of approximately 38,000 square feet of space here in New York City, we have leased approximately 45,000 square feet of new space in Midtown Manhattan for our corporate headquarters. As a result of this expansion the company will incurred greater rent expense during the remainder of 2016 over 2015. In addition to the increase in the price per square foot and the increase in total space, there is a period of several rents [ph] from carrying two leases from June 1st to October 31st. As we prepared to move from our old to new Manhattan locations. As I have guided in prior quarters our continuing investment in occupancy related costs will negatively impact our annual research EBITDA and consolidated adjusted EBITDA growth for 2016 and cause temporary declines in our research this EBITDA and consolidated adjusted EBITDA margins for 2016. We believe that these margins contracting will be temporary as we expect that our products in sales and marketing segment will result in additional revenue growth and margin expansion back to our conditional margin level in 2017.
Following our [indiscernible] consolidated balance sheet statistics at June 30, total consolidated assets aggregated $126.2 million. Cash and cash equivalents at June 30 aggregated $26.6 million. Maintaining our cash balance at these levels continues to demonstrate the power of Reis business model to generate cash even while we have increased our operating expenses, capital investments and dividends.
We capitalized nearly $4.5 million related to website database expansion and investment in the six months ended June 30, 2016, which almost doubled our 2015 investment over the same time period. We also invested $1.3 million for fixed asset addition, primarily in connection with the space build out in White Plains, New York and our corporate headquarters in Manhattan. In addition we utilize almost of $3.9 million of cash year-to-date to pay dividends of quarterly rates of $0.17 per share. These activities have been funded through operating cash flow and have not required any borrowings on our revolving credit facility. Customer receivables net of allowances is aggregated $6.7 million at June 30.
We are reporting deferred tax assets on the balance sheet of approximately $17.3 million as of June 30. We utilized $1.1million of this deferred tax asset in the current six months period. The deferred tax asset balance is expected to be sufficient to continue to shelter us from paying federal taxes for approximately the next four years depending on our profitability in each period.
Total liabilities aggregated $25.3 million of which deferred revenue was approximately $20.8 million. Aggregate revenue under contract, which is the sum of the differed revenue and future revenue under non-cancelable contracts for which we do not yet have the contractual right to bill totaled $42 million at June 30, 2016. Of the $42 million of backlog [ph] revenue contract approximately $30.6 million relates to amounts under contract for the forward 12 month of period through June 30, 2017.
The deferred revenue decline from June 30, 2015 to June 30, 2016 of approximately $667,000 and the $7.5 million decrease in aggregate revenue under contract, were both impacted by the timing of contract lines. A few customers they had contracts expired at June 30, 2016, has been signed on month to month basis. As contract negotiations continued this has resulted in only one month of differed revenue for these subscribers being included in our June 30, 2016 balances. Both differed revenue and the forward 12 moths on component of aggregate revenue under contract excludes 11 months of revenue from those customers that has previously included in the corresponding balance at June 30, 2016.
That said as of this morning, we’ve finalized contracts on two of these months to months customers, which would have increased the June 30, 2016 balances of differed revenue and aggregate revenue under contract by $1.2 million and $2.5 million respectively. We’ve entered into a new three year agreement in January 2016 with our bank, Capital One to renew and expand our revolving credit facility from $10 million of borrowing capacity to $20 million. The company has not drawn down against the revolver remaining debt free. Stockholder’s equity was $101 million at June 30. Total common shares outstanding aggregated 11,326,000 of which our directors and senior management beneficially owned approximately 22.7%.
Finally, I would like to update you on our revised outlook for 2016. After considering all of these factors, we’ve discussed today we have revised management expectations our 2016 full year revenue growth rate to be in the range from a small single-digit decline to flat over actual 2016 annual revenue. Management’s expectations for full year 2016 Reis Services EBITDA and consolidated adjusted EBITDA have been modified as well. We are expecting a decline of approximately 20% to 22% versus annual 2015 results and with an annual Reis Services EBITDA in a range around 35% and a consolidated adjusted EBITDA margin in the range of around 30% bigger. Variability in EBITDA and adjusted EBITDA growth rates and margins could also occur quarter-to-quarter, particularly with concentration of margin pressure in the third quarter.
Considering the impact of the previously discussed pro forma adjustments specifically custom data deliverables and the effect of double rent, we are expecting pro forma Reis Services EBITDA and consolidated adjusted EBITDA of 2016, the decline by range of approximately 13% to 15%, representing margins in a range around 35% for Reis Services EBITDA and 30% for consolidated adjusted EBITDA.
We would like to give an early indication of pro forma expectations for fiscal 2017 based on the significant investments in our new product and enhancements and by the ongoing expansion of our sales and marketing resources together with the difficult comparisons of 2015, we anticipate that in 2017 reasonable return to growth for revenue and EBITDA and growth rates consistent with the range of rate utilized by the street analyst and with margins more in line with our historical performance. Of course, these are very preliminary expectations for 2017 and are subject to change. Similar to last year, we plan to provide you with an update of our outlook for fiscal 2017 and our earnings call for the full year 2016 next March.
This concludes my comment on the financial result for Reis’s second quarter ended June 30, 2016. At this time, I would like to open the call for questions from the analyst community.
[Operator Instruction]. Our first question comes from the line of Ian Corydon with B. Riley. Your line is open.
I wonder if you could give any more color on what the revenue growth rate in the first half would have been not just excluding the custom deliverables, but including some of the intellectual property compliance initiatives. And the reason I’m asking is your expressing confidence in 2017 based on investment you’ve made in 2016, but I recall you made significant investments in ’15 as well and that doesn’t seem to be flowing through as much to the revenue growth rate.
Hi Ian, it’s Lloyd. My sense is that generally speaking if we were to make that adjustment, we’d add probably 200 to 400 basis points more of growth on top of what the reported pro forma rates would be.
Great. That's helpful. And Mark the G&A number in the second quarter was about a $0.5 million below what it was in Q1 and Q3 and given the duplicative rent toss coming, may be you could just talk about what the right SG&A run rate is going forward and then what we might see in the third quarter because of those duplicative costs?
I think that the third quarter now will increase probably by a range of $600,000 to $800,000 alone from the real estate related costs associated with the move to new space and the build out et cetera that was talking about in my earlier comments Ian. I think there could be another couple of $100,000 of cost increase in G&A as well as there is additional hiring that is going on currently in the quarter. Yeah, so I think that the third quarter is going to be a difficult for you to say that's the standard quarter moving forward. I'll have to think a little more about what I think the fourth quarter will be, I think that that will be a better run rate point for your guys moving forward. So, let me give a little bit more thought to that.
Okay, thanks. And regarding the renewal rate, it sounds like it was at least partially impacted by renewals that might have pushed into the third quarter. But more generally if you think about the renewal rate and where it is today, folks who aren’t renewing are they just going without the data or they moving to some other service?
Well, I think our renewal has been impacted by couple of things, some of it was the month to month stuff. We did have a lower renewal rate than expected particularly linked to some of our large prior year compliance contracts which were very -- which when we signed them there are the significant amount of residual pension that was left behind as a result of revolving underlying compliance issues and in particular there were a couple that did not renew. So that is something that’s had a significant effect on the second quarter -- that rolled into the second quarter.
In addition, I think that there will be continuing a little bit more variability as we move into the third quarter just as a point of reference, the math in the first quarter is going to be effected by one large customer who I will name GE Commercial Real Estate, they’ve very publically left the business about 15 months ago, but they had a $700,000 plus subscription with us which was just completed and it's going to be a hit to our renewal rates and that's going to be similar instances probably with other vendors as well that had contracts with them.
So, there will be a little bit more I think of a hit that will flow through the number in the third quarter, but we've done some significant things and we believe that the pressure that we’re reporting on renewal pricing and the lift that we're getting is appropriate and we think that with some of the hiring and sales initiative that we have put in place as of this point will improve renewal rate as we move forward over the remainder of the year.
Great, that's helpful. And so my last question, just want to get your sense for the overall commercial real estate market, I don’t think anyone is saying at the market is not healthy but, in the first half it did certainly see some weakness in transaction volumes and financing, wanted to see if you feel like that’s having on the business?
I would say only a little bit in the sense that, I think particularly if you looked at the banking sector and some of the earnings, you can see that there is kind of renewed commitment for some of the cost containing programs that we might have seem certainly through ’13 that might have let out a little bit ’14 and ’15 as transaction volumes and other financing debt [ph] have gone down.
But I would concur with your view that as an overall real estate market, despite that and maybe despite some of the uncertainty regarding the macroeconomic factors are including the Brexit, energy prices, maybe some of the political turmoil. But I think that the fundamentals for the space market really across all the sectors and I could put this into a more then a 30 year time line, that the funded by any measure looks reasonably solid. I think there may be are some selective [indiscernible] market that have a risk of localized overbuilding. But generally speaking I think, if we look across the nine property sectors that we monitor, we see a strong market persisting for the next several years with some localized overbuilding.
Our next question comes from the line of Michael Graham, Canaccord. Your line is open.
Couple of questions, first on the, you’re going through this process of getting more firm on renewal pricing and also cleaning up unauthorized usage and both of those things are creating some headwinds. I’m just wondering, when do you think we’ll be done with those two processes and more of the -- sort of growth can be off of a more as stable, sort of run rate base?
I think we’re trying to communicate that we do that very much ’17, I think as Mark has endeavored to point out that, we’ll still have a number of the kind of first of all, he did mention the portfolio aspect, but obviously a lot of that will be cleaned out by the end of the year. So we will be going into 2017, with much cleared base of comparison. I think that with respect to some of the issues -- other issues is being raised like [indiscernible] that’s also something that we will see in 2017, it really won’t be nearly as much of the factor. Which will by the way doesn’t mean that we won’t occasionally have to negotiate for our settlement payments that will give a periodic uptick in our revenue from EBITDA. But general speaking we’re now putting pretty much more emphasis on building subscriptions.
And I think that, it’s a favorable as you mentioned in terms of the pricing and the relationship between pricing uptick and rental rates. I think we’re easing through that as well as we have now been focusing on getting pricing back into this kind of establish patterns of usage over the last few years. And if anything we’ve beginning to perhaps on a selected basis to go the other way, because we got shorter term and confident that the usage that many of these clients are pulling down of our service is so high that it’s -- actually interests me renegotiating the contract more frequently to capture uptick in pricing.
So I keep all three of those variables will contribute to and for similar levels planning to as ’17 will contribute to the kind of growth rate that Mark alluded to in his call which is much more consistent the three as long as you include [indiscernible] for 2017.
Okay. That’s helpful Lloyd, thank you. And then my other question was just, I wonder, if you could share some update on, some of the property types that you’ve launch recently whether it’s affordable or student housing, what’s the uptake been like, how is it compared with property types that you might launch earlier on in Reis’s evolution. And just help us understand, if those property types or having an impact on the business?
Sure. Well, first of all lots [ph] of the affordable housing was just launch this week, so I have no data. But I would say -- actually I was just, we’ve suggest that probably all of the property types that we have launched in recent years including self-storage, student housing, senior housing that are affordable in our view, addresses the largest area demand and certainly of unmet demand of anything that we’ve done. So we’re quite happy that we’re the only vendor in the market, who is doing work in the affordable housing sector.
Interestingly, on the other property types that you mentioned if anything, here we are depending about which property type we’re talking about, probably one to three years out and I would say thus far 2016, we’ve seen more uptake in the single solo [ph] subscription to those property type whether it’s self-storage, whether it’s students. Because what we’re finally seeing and, one, we’re having success and identifying and penetrating those equity owners and developers who are only involved in that one active platform and selling to them.
The other reason is that back to kind of Ian’s last question, as perhaps maybe pricing has been bid up in conventional apartments, we see a lot of multi-family investors turning to students or turning to seniors and again being able to sell that. If anything I’m seeing uptick, I’m more pleased with the uptake in those additional sectors in 2016, frankly than I was in the immediate couple of quarters after their product launch.
Great. Thanks a lot for that.
Thank you. Our next question comes from the line of Matt Blazei, Lake Street Capital. Your line is open.
Couple of things, just want to make sure to clarify what you just raised, cost reductions in the dollar volume of contract signings. It sounds like, when you were successful with your IP efforts that you’re getting a higher -- you said that -- I think that you’re getting better pricing on those than you’d usually would?
Perhaps slightly, but I think that the bigger point is, that in a first couple of years of that we were discovering circumstances in which there had been a sizeable amount of back usage that was not in clients [ph]. So we were able to often time negotiate a settlement and of course as Mark has alluded that, we’ve recognize immediately. And so as we move forward and as we become more efficient at identifying issues that produce immediately and therefore not really allowing for cases in which there is a large backlog and legally usage. Then it has reduced significantly, the circumstances where we can get those kind of settlements and that’s I think more of what we’re speaking to Matt.
Okay. So really, this is the new normal, this is the new run rate?
Yes. I would say what’s exact. I think that’s a very good point. Maybe we didn’t make that clear enough, is that we now have, we have a phase of full ongoing weekly discoveries of new cases that we pursue. Occasionally there is one with back usage that [indiscernible] with other settlement, but much more often we’re focused exclusively on signing them into our recurring revenue vis-à-vis, prescription of one or multiple years. I think that's well said.
Okay, good. And then I think that you mentioned in your guidance that you were expecting this client of 20% to 22% in your EBITDA, is that correct?
Yes, and that would be for 2016 against 2015 actual. You are correct Matt.
Okay. And you think that a lot of that will be that Q3 may be a little bit worse than that?
Okay. I got it. Alright, thanks guys.
Thank you and I’m showing no further questions at this time. I’d like to turn the call back to Mr. Lynford for closing remarks.
Thank you to all of you who have participated in our call. We are very optimistic and bullish on our future and as always, Mark and I are available to speak to current and prospective stockholders of Reis, we'd be happy to answer any of your questions obviously within the parameters regarding selective disclosure. Our next call will be early November to announce and discuss our third quarter 2016 results and we do very much we appreciate your continuing support of Reis. Thanks and have a good day.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.
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