RealPage Inc
Q2 2020 Earnings Call Transcript

Published: 1 Aug 2020

[Operator:]

Greetings and welcome to the RealPage Second Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Rhett Butler, Vice President of Investor Relations. Thank you. You may begin.

[Rhett Butler:]

[Steve Winn:]

Thanks, Rhett. Welcome, everyone, and thank you for joining us. Second quarter financial performance was quite a bit better than expected, with total revenue growing 17% to $286 million and adjusted EBITDA also growing 17% to nearly $80 million, both compared to last year. Numbers were exceptionally good relative to guidance because the impact of COVID-19 was not as impactful as we had feared and there is surging demand for solutions that facilitate virtual leasing and living offered by RealPage. Today, I’ll discuss our perspective of the macroeconomic impact of COVID-19 on our industry and how we see RealPage performing in that backdrop. I’ll also review the strengths of our strategic platform with special emphasis on our virtual leasing and living solutions that have become immensely more important with so many residents working and living at home. Finally, I’ll provide an update on our progress penetrating the large SMB segment of the rental housing market, a market that we really like. First, the apartment industry backdrop. Leasing activity that plunged in March through May has now come back to much healthier levels. The number of leases executed in June and July topped year ago volumes in most locations. In turn, occupancy is still in solid shape at just over 95% for the country as a whole. Following the same pattern seen in leasing volume, pricing took a big hit in late Q1 and early Q2 but now appears to be stabilizing. We can look at the rents recorded in signed new leases tracked in either our property management or revenue management software. Those numbers give a much more accurate view of what’s happening in the market compared to merely looking at rents reported by Internet listing services or other sources. Those executed rents show U.S. pricing is back to the level seen a year ago. That’s after rents plunged as much as 7% or so year-over-year in the early days of the second quarter.

[Tom Ernst:]

Thanks, Steve, and good afternoon, everyone. As Steve highlighted, RealPage responded at a very high level to the challenges presented by the COVID-19 pandemic in Q1 and Q2. Our team built the RealPage ship long before the pandemic to excel and is navigating it skillfully. We believe RealPage has a powerful reinvigorated organic innovation engine, and the ship is charted on a course for long-term market leadership and growth in revenue and margin despite the rough COVID-19 season. Second quarter financial performance reflects this strong growth and reflects strong RealPage positioning and the response of its team. Total revenue grew 17% year-over-year, which included 9% growth on an organic basis. We exceeded the high end of our revenue and EBITDA guidance range by $6 million and $10 million, respectively, and we are raising the midpoint of our full year outlook by $10 million and 50 basis points, respectively, to reflect our confidence in higher growth in margins. Our earnings and cash flow performance were strong. Adjusted EBITDA grew 17% year-over-year to $80 million. We generated nearly $75 million of operating cash, net of changes in customer deposits. This represents a record performance for both metrics. Total RealPage ACV growth was 19% compared to the prior year, consisting of 14% new unit growth and 5% ARPU growth. We ended the quarter with almost 19 million units consisting of nearly 10 million multifamily units from owners and managers with over 5,000 units and over 9 million SMB units. Total bookings production experienced a strong start to the year but decelerated significantly in March through May. By the end of June, 2020 bookings were ahead of last year and are accelerating. And we’re seeing solid sales across all product lines, especially solutions that enable more virtual leasing and living. Total sales team members at the end of the quarter were 625, reflecting 28% growth compared to the prior year quarter. We expect to invest modestly here under the current climate and continue to focus on productivity.

[Operator:]

Thank you. Our first question comes from Jason Celino with KeyBanc Capital Markets. Please state your question.

[Jason Celino:]

Thanks for taking my question. Can you hear me okay?

[Steve Winn:]

Hi, Jason.

[Jason Celino:]

Tom, if we kind of think about the trajectory of kind of long-term targets, I recognize that there’s a great opportunity ahead, most especially with kind of the Buildium and SMB. But what are some of the milestones that we should think about before we can kind of think about that path back to 30% EBITDA margins?

[Steve Winn:]

Well, we’re going to get natural scale just by growing revenue. G&A is an opportunity, and we clearly believe there’s a significant opportunity to become more productive in the cost of sales. We think we can reach that target in the next couple of years, certainly on a run rate basis, without much change to the expense-to-revenue ratio on product development and sales and marketing, which we do want to continue to aggressively fund in order to continue the march towards higher and higher revenue levels.

[Tom Ernst:]

Yes. As we think about those long-term plans, and we’ve talked about $1.5 billion run rate target and $500 million in EBITDA target to exit 2020 that, that would imply something on the order of a 30% EBITDA margin as a midterm target for us. So that’s – that type of a balanced approach on striving for organic growth and innovation, along with delivering margin expansion is something we remain focused on. Obviously, 2020 is a bit more about for us operating through COVID and making sure we’re delivering for customers and delivering that balance, but we are focused on growth and margin expansion as we think about the future.

[Jason Celino:]

Okay. Great. And then one quick follow-up. If we think about property manager budgets and the budgeting process, and there is a little bit of uncertainty in last especially with the decision on stimulus for the second half, but with some improvement in leasing activity and other trends, have you seen any signs that maybe some customers might be wanting to turn any projects on that they’ve previously delayed or, I guess, what do you think of that?

[Tom Ernst:]

We definitely saw a continued improvement throughout the duration of the second quarter in terms of our customers’ willingness to sign up for new projects and activate those new projects and engage with us in deploying technology. So it’s an encouraging trajectory over the quarter. I think as Steve highlighted in his prepared remarks, there’s still quite a bit of uncertainty in the market as we think about how that momentum continues, but the signs during the second quarter were definitely encouraging towards readiness to do more new projects with RealPage.

[Jason Celino:]

Great. I appreciate color. Thank you.

[Operator:]

Thank you. Our next question comes from Sterling Auty with JPMorgan. Please state your question.

[Sterling Auty:]

Yes, thanks. I wondered – first of all, actually, Tom, congratulations on finishing up a tenure on a high note. Onto the business. In terms of the virtual leasing solutions that you kind of highlight that are in high demand, can you give us a sense of what percentage of the business that represents today? And are all those based on internally developed technology or is there any third-party license technology that is embedded in it?

[Steve Winn:]

Leasing is primarily internal development, but we do obviously rely on the core AI engines from other parties. The big change here is, can we deliver a better experience at least 16 hours a day to a prospect that wants to tour a property if they visit it virtually versus in-person. And we believe vehemently that we can. And that is the thrust of a lot of the development that’s underway. Right now, our clients are using Zoom or a platform like that to do virtual tours. And while that’s good and it works, it’s not optimal from a consumer experience perspective. So that’s what we’re focused on doing. I do think the industry will enjoy two benefits. One is better conversion, and the second is just lower cost for leasing labor. We’re not going to eliminate the leasing agents. In fact, what’s going to happen is they’ll get repurposed to become virtual leasing agents working out of their apartment. They don’t actually have to come to the leasing office in order to do their job. But there’ll probably be fewer of them, and they’ll be utilized much more efficiently because they’ll be able to manage more than one property.

[Tom Ernst:]

And Sterling, the first part of your question, we have several technologies that I think could fit in here, including portal – our portal capabilities, leasing capabilities, payments, that all support virtual leasing and living technology. So it does – in total, if we think about all of that, it represents a significant minority of our business in the quarter.

[Sterling Auty:]

All right. Great. Maybe one follow-up. The contact center solution that you offer out, how have you been able to manage that through COVID-19? And has that taken any revenue hit?

[Steve Winn:]

Well, contact centers are probably more important in COVID environment, not less. The AI chatbot has actually been helpful because we would have had a hard time staffing up to handle everything without AI chat. It’s also helpful to the clients because the cost of AI supplemental contact center is less, it’s lower. We actually see the contact center revenue going down in the future. But because we’re so much more efficient, we believe we can hold the profit at a higher level. Certainly, margins will go up.

[Tom Ernst:]

Yes. And Sterling, as you know, that the contact center is one of the larger pieces of business in our leasing and marketing area. And overall, that business has been, in recent quarters, has trended around zero organic growth, and the contact centers lagged a little bit in it. So this has been something that has not been a secular growth driver for us. It’s been the opposite. So this new technology here is something that we’re hopeful that – and anticipates can drive growth and profit against that long-term demographic trend.

[Sterling Auty:]

Perfect. Thank you.

[Operator:]

Thank you. Our next question comes from Matt Hedberg with RBC Capital Markets. Please state your question.

[Dan Bergstrom:]

It’s Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. You highlighted the trends through the quarter in prepared remarks and then in the answer to the first question there. Wondering if you had any thoughts on trends or feel for the environment through July here. Is there any way to think of the month of July versus June or even July versus past Julys?

[Steve Winn:]

That’s an insightful question, and it’s one that has been top of mind. We had hoped Congress would make a decision on unemployment stimulus before the existing program expires. But given that we don’t know exactly what’s going to happen, it is our expectation that August rents will probably collect at a lower level than July rents.

[Tom Ernst:]

I’ll add to that too, Steve. You can also go look, Dan, NMHC continues to publish weekly the stats on some of the activity levels that we pointed out. So those are continuing to show reasonable levels of health through July is the most recent data that we share with them.

[Steve Winn:]

Yes. We didn’t see much decline at all in rent collections. It was down slightly, but that was also, I think, in large part because the stimulus was so good.

[Dan Bergstrom:]

Yes. Okay. That’s why kind of I asked the question because their last survey showed deteriorating trends in July, actually, but it doesn’t sound like something you’re seeing. So you kind of mentioned about the rent payments last quarter. You provided us with a percentage of units paying rent, 300 basis points decline in April versus last year. Is there any update for May, June, July, perhaps?

[Tom Ernst:]

So Dan, we absolutely see their data. That’s our data. There is a marginal deterioration on the volume of payments. And you can see in our investor deck, too, we posted after the market closed where we shared some of the activity levels that we shared last quarter to be helpful, such as the leasing activity. That shows a continuation of the health that we saw in June. So it’s definitely too early to really talk about how July rent cycle closed out because the July rent cycle closes out in the second week of August. That’s when you really know exactly how it finished out. But yes – no, you’re right that NMHC is showing about 100 basis point potential deterioration in July so far on the data versus last month.

[Dan Bergstrom:]

Thanks, Tom.

[Operator:]

Our next question comes from John Campbell with Stephens. Please state your question.

[John Campbell:]

Hey, guys. Good afternoon and Tom, congrats for the successful run and best of luck in future endeavors. On...

[Tom Ernst:]

Thank you.

[John Campbell:]

Yes, absolutely. On Resident Services, I mean, obviously, really, really good growth for you guys in the quarter. I just want to unpack that one for a little bit. If you guys could talk at a high level the strength may be coming from cross-sells, particularly, I guess, as it relates to Buildium. And then on payments, I know that was – a lot of us were expecting that to maybe be a bit of a headwind with COVID. It sounds like that flipped to a tailwind that actually helped drive growth. So maybe if you could talk to kind of what drove that reversal in the quarter.

[Tom Ernst:]

Yes. So Buildium’s results do spread across our product family buckets, and I know that makes it a little bit more difficult for you, but Buildium’s momentum continues to be strong. We’re not going to break out their specific performance separately, but the business is performing well there and is largely following the RealPage trends in terms of the transactional weakness that we anticipated due to COVID, and the Buildium business was a little bit less than we expected, and it continued to execute on strong growth. You’re right that we had highlighted that there was potential risk in payments. And the net effect, and you can see this in our growth in the Resident Service bucket, was actually a net – a little bit of upside in that bucket driven by some mild payments upside due to the COVID-19 environment. We did have some negative effect due to COVID-19 that’s shown in the performance, primarily in the Property Management, property – product families and the Leasing and Marketing product family.

[John Campbell:]

Okay. That makes sense. And then staying on the SMB market, Steve, just a really high-level question here. But you’ve had Buildium for a couple of months now. How are you viewing kind of lower end of the market? If you could maybe break it down to, I guess, what the most encouraging thing you’ve run across thus far and then maybe on the flip side, what’s been the most surprising or kind of challenging thing you’ve seen?

[Steve Winn:]

Buildium is pretty much right on plan. We – in COVID, I mean, it’s still performing at higher growth rates than when we bought it. We now have 9 million units in the SMB space, which makes us, by far, the largest technology provider in that market. It’s $424 million of ACV. And we anticipate we’ll continue to do well in that space because it’s so underpenetrated. There’s just lots of room to sell other RealPage products and services into that space. And it’s got 50 million total units. So there’s a lot of opportunity just to continue to expand units in that area.

[John Campbell:]

Okay. That’s helpful. Thank you.

[Operator:]

Our next question comes from Pat Walravens with JMP Group. Please state your question.

[Pat Walravens:]

Great. So two questions. I’ll just put on both out upfront. First of all, is there any update on accounting-related matters? And then the second one would be, Steve, what are you seeing competitively in like the core part of the market in terms of your traditional payers?

[Tom Ernst:]

I’d like Brian Shelton, our Chief Accounting Officer, to take that, Brian – because we do have some good news on the one front, but also talk about some of the strengths in our cash flow, if you would.

[Brian Shelton:]

Sure. You bet. Thanks, Pat, for your question. Good to hear from you again. On the accounting front, over the past 7 months since we announced material weakness, we’ve completed a healthy review of the entire processes surrounding the controls. And we’ve made significant improvements in both the IT security and all the IT general controls. We anticipate that when we filed the 10-Q that we will have successfully remediated the material weakness. Do you want to...

[Tom Ernst:]

Yes. Why don’t you address some of the strength in the cash flows?

[Brian Shelton:]

Sure. As we reported in the operating cash flow growth for the quarter, that was really driven by two primary things. One was the EBITDA growth that was in the quarter. But also, we had a very strong performance on collections that led to the strong operating cash flow. As COVID began taking into effect, we quickly put together a cross-functional team involving our receivables team and our account managers to begin a collaborative discussion with all of our customers. Also, we quickly developed tools that enabled our teams to assess client health and begin identifying risks that we were seeing in the portfolios. These proactive measures led to an improvement of DSO of 8 days year-over-year. So we were down to 41 days. So the operating cash flow had a very nice quarter, really driven by the EBITDA growth and just very strong collections.

[Tom Ernst:]

Yes. Thanks for that question, Pat. Brian was a huge driver, again, his team behind both those initiatives. So it’s a big success for us. Steve, Pat also asked about competition.

[Steve Winn:]

We don’t like our competition, but we...

[Pat Walravens:]

I was really getting with regard of the price, you heard that, right?

[Steve Winn:]

We see the same cast of characters from the – for the large guys, and they’re – I don’t think there’s really been a change in the competitive environment. Most of our sales thrust right now is in virtual leasing and living, and we think we do have a competitive advantage in those areas. We certainly have a competitive advantage in all the revenue management technology, which is becoming more and more important as we move forward in time and start to optimize the pricing of amenities. It’s no longer about just optimizing base rent. It’s about how do you price parking spots and guest suites and all of the 140-some-odd amenities that owners can use to increase yield without raising base rent, which they’re having a harder and harder time doing. So we think we’ve got a good, strong competitive advantage there. I will say there is a lot of VC-backed smaller companies attacking this area of virtual leasing and living and really thinking about what is the next generation of apartment going to look like. So this is one of the reasons why we wanted to put more money on the balance sheet just so we were well prepared to capitalize, not just on our own internal innovation, but also look at what everybody else in the market is doing. And we’re prudent acquiring innovation and not just building it ourselves.

[Pat Walravens:]

Great. Steve, if I can ask you, I don’t remember how long ago it was, but there was this period where the partnership between Yardi and one of their – used to be Property Solutions Inc. had gone south. And you were saying that there were some big clients that were up for grabs that had never been up for grabs, and these were the sort of multiproduct deals. I’m just wondering, has that whole thing played out?

[Steve Winn:]

Yes, it has. They settled the lawsuit. They won’t tell us what the settlement was. So I don’t really know how it worked out, but they do cooperate today. So – but they’re also – I don’t think they care much for each other. That opportunity is behind us. And we did have some success for that, by the way.

[Pat Walravens:]

Okay, fair. Thank you very much.

[Operator:]

Our next question comes from Josh Lamers with William Blair. Please state your question.

[Josh Lamers:]

Great. Thanks, guys. Good afternoon. Another one on Buildium. You noted that SimpleBills integration and Buildium is progressing well. And I think last I saw you guys were in the process of integrating LeaseLabs and IMS. So I’m curious what inning that puts you in for integrating the legacy RealPage solutions that you’ve earmarked for Buildium? And then once fully integrated, does there become a more concerted sales effort? Or is it fair to say that cross-selling is already meaningful underway?

[Steve Winn:]

Well, we haven’t integrated everything. So there’s more work to be done there. We have expanded the number of salesmen. If you look at the increase in sales reps, I believe it was 576 in the end of the first quarter, and we’re up to 625. A big chunk of that is in the SMB space. So we are definitely expanding reach in that market.

[Tom Ernst:]

And Josh, remember, our plan was to bring RealPage’s products to Buildium over time – over a careful path. And so we are making significant progress, and we will announce availability of RealPage services on top of Buildium over time. But it is absolutely progressing with the operating plan we put together at the launch.

[Steve Winn:]

Yes. I think we can – you can really see it, too, in the numbers. ACV was up 35% in the second quarter. Units were up 26%. And probably the most interesting increase was revenue per unit was up 7%. Now that may not sound like a big deal, but all of the Buildium units that came in were at substantially less than $47. So we made all of that up through cross-sell, and we’re able to increase ARPU 7% on top of that. So there’s clear evidence that the strategy is working.

[Josh Lamers:]

Okay. And then with all the new supply coming to market that you mentioned, and it sounds like many people are reading your urban core, curious if we’ve gotten to the part here where larger urban multifamily complexes have hit the point of year-on-year rent declines and added concessions? And assuming that’s the case, I’m wondering if you can just talk through how the revenue management YieldStar tools function in the down market? Just wondering if there’s a counter component there or what do you expect?

[Steve Winn:]

Well, we’ve tested the revenue management tool in a down market in 2008 and 2009, and we’re very carefully monitoring this engine to be sure that it’s optimizing exactly the way it should be in a down market. It’s analyzing literally hundreds of variables that drive what the price – optimal price should be. And it’s working very effectively. We’re seeing revenue managed properties outperform nonrevenue managed properties through the downturn very well. The distinction between urban and suburban is an interesting question. It appears that urban is under a little more pressure than suburban because I think the people that rent in a suburban location pay more because they enjoy all of the density and the amenities surrounding the urban apartments. As COVID hit, there really weren’t a lot to do around those apartments. So I think a lot of residents just said, why are we paying $500 a month more to live here, and we can’t do anything here versus live 20 miles north or south and essentially have more square footage at the same or lower price. So that’s what’s going on. I do think that’s going to revert back when urban is – migration from suburban to urban was a clear trend we saw pre-COVID, and I think that will come back when the all safe sign is delivered.

[Josh Lamers:]

Okay. Thanks for your time.

[Operator:]

Our next question comes from Ryan Tomasello with KBW. Please state your question.

[Ryan Tomasello:]

Hi, everyone. Congrats on the quarter. Clearly, very strong. And Tom, best of luck on your next adventure. Just looking at the revised 2020 guidance, based on our math, it implies about a $2 million increase at the midpoint, excluding 2Q’s outperformance. So I guess my question is, why isn’t 2Q strength carrying over into the rest of the year? I realized a lot of the top performance in the second quarter related to transactional revenues coming in better than forecast, but your comments on a surge in this virtual demand would seem to imply a bit more strength. I guess how much of that is timing related before we start to see this demand benefit the top line? And then just as a follow up to that, what kind of assumptions are you making in the second half in terms of the impact from transactional revenues? I believe the prior full year guidance assumed about a 150 to 250 basis point headwind for full year revenue growth?

[Tom Ernst:]

Yes. Thanks a lot for the question, Ryan. So I think our guidance range assumes a range of performance that includes some fairly negative scenarios without ruling out the most negative of economic scenarios. That include things such as little to no stimulus being renewed for the course of the year, while the upper end of the range continues more of the trajectory that we’re seeing thus far this year. Stimulus was renewed. Continued health in the markets, continued ramping readiness and willingness to book and activate new projects with RealPage. And what that’s enabled us to do – so now granted that uncertainty here in front of us, it’s prudent to take a view and plan for – plan prudently as we think about those scenarios. So as we factor that in, our guidance last quarter included about a 400 basis point impact to growth versus our prior assumptions for growth for the year. The assumptions this year, we’re looking at the upper half of our assumptions on what the impact would be. So we’re thinking about the upper half of a 13% to 17% growth rate and 15% to 17% growth for the top line.

[Ryan Tomasello:]

Got it. And then I guess, just shifting gears on M&A. You provided some commentary in your prepared remarks, but I was wondering if you can give us some updated color around what types of acquisition opportunities you’re seeing. Have you seen more willing sellers? And any changes in pricing? And in terms of types of deals, should we expect to see similar tuck-in acquisitions like a Modern Message? Or is anything more needle-moving and product expanding like a Buildium also a potential in this environment?

[Tom Ernst:]

Yes. We definitely see more opportunity in the pipeline, and that’s just a reflection of the uncertain environment changes the dynamics for innovators that are away from RealPage. So while there’s a range of potential opportunities available to us, the most likely ones you’re likely to see are those smaller 4 to 6 deals a year that we’ve been executing on historically. And that makes up the largest set of the acquisition pipeline. And the good news for us is that with – as the market leader and the strongest platform and the reach to customers and strong product synergies, we’re the obvious home for point innovators in the marketplace. So we’ll continue to look at those. And I would say that you’re most likely to see us execute on the smaller side, but there is a full range of potential opportunities as we think about more of the mid and long term.

[Ryan Tomasello:]

Thanks. Congrats again on the quarter.

[Tom Ernst:]

Thank you.

[Operator:]

Thank you. Our next question comes from Michael Turrin with Wells Fargo Securities. Please state your question.

[Michael Turrin:]

Thanks, good afternoon. You’ve talked about the relatively low levels of tech spend in the industry historically. Anything to call out that you’ve seen more recently that could suggest that as this recent amount of uncertainty comes to pass, it could maybe help unlock appetite for software spend there a bit quicker than what’s previously been expected?

[Steve Winn:]

I think you will see owners, particularly institutional grade properties, come to the realization that the needs of their residents have changed and that more of them will be working from home. And if they can’t deliver the conveniences of work at the place of living, they will be at a competitive disadvantage. That will then lead to investments in technology to upgrade infrastructure and the systems that are driving the way you deliver conveniences to residents that are spending more time at home. So our estimate is that – or our prediction that we’d see an expansion of tech spend in this industry, we still hold.

[Michael Turrin:]

Thank you.

[Operator:]

Our next question comes from Keith Bachman with BMO. Please state your question.

[Keith Bachman:]

Thank you. And Tom, best wishes for you. I wanted to ask about – any color you can give us on the ACV growth that you had this quarter and the underpinning to it? How we should be thinking about that as we’re rolling through the year? And not only new units, but any kind of direction, the 5% ARPU growth seems to be particularly strong, particularly as Buildium is growing, but any kind of color you could – or framework directional comments you could give us on how to think about the ACV growth through the year?

[Tom Ernst:]

Yes. Thanks for the question, Keith. So as we look at Q2, the ACV growth did mirror some of the comments I made around, and Buildium is certainly a strong contributor to that. Buildium – SimpleBills is also an acquisition that’s a healthy growth driver for us, along with a number of the other functional areas within our product families that I highlighted in the prepared remarks. As we look forward, Steve paid a lot of attention to technologies that enable our customers to drive virtual leasing and living. We certainly have seen a pipeline shift towards some of those technologies and readiness to move to full online payments and portal technology. So there may be a marginal shift that direction as well. But I would think that the full year trend and the growth outlook at either the high or low end of our scenario is going to largely match what we’re seeing here in the second quarter in terms of growth momentum besides that type of a shift.

[Keith Bachman:]

Okay. So maybe kind of mid-single digits or continued healthy growth?

[Tom Ernst:]

I’m sorry, our – the growth forecast for the rest of the year? You talk about growth rate?

[Keith Bachman:]

Yes, the growth rate of ARPU. I’m just trying to understand, is that mid-single-digit ARPU number? Or is that a durable number, you think?

[Tom Ernst:]

So our guidance is – was specific to revenue growth. We don’t guide generally on an ACV basis. Our organic growth – oh, yes, yes. So if you decompose the ACV growth, this might be a way to help you think about it as well, our unit growth has historically accounted for about three to four points of the growth. In the COVID environment, it’s been a point or two lower than that. So depending on the health of the COVID environment, that may pick up and support higher growth. The rest of the growth has been an ARPU expansion. So I think as we decompose the range of our outcome expectation, it’s more dependent on whether we see an acceleration on the unit side or not. But also, there’s ARPU drivers as well. As Steve highlighted in the SMB success, we’ve seen an ARPU expansion.

[Keith Bachman:]

Okay. Great. Yes, that’s what I was thinking. And then, Tom, you mentioned the leverage ratios and how, particularly even at the run rate, you’re kind of at Q2. And so as you think about the cash flow generation, you just did some deals. Do you think about maintaining that steady debt levels where you are now? Or would you consider paying more down? But – or just any kind of color on how you’re thinking about that? It seems like you want to leave the leverage ratios where they are, but just if you could just elaborate on what your plans are.

[Tom Ernst:]

So we feel that we’ve fully strengthened the balance sheet to be opportunistic in this environment. Our target leverage ratio of two to four times, we think, is optimal for driving financial return while enabling us to have flexibility to be out in the market and opportunistic in terms of bringing acquired innovators and innovation product into the – into our business. So it’s at a comfortable reset type of position for us now. So we like where that is. And as we think about how we’re managing that balance sheet, I did highlight that we have $632 million sitting on cash on the balance sheet. We’re evaluating continuously the best way to optimally maintain that balance sheet and keep the flexibility. Right now, a fully reset revolver with cash on the balance sheet is attractive given the opportunities that we’re looking at, but we are making continuous evaluations on how we can manage that to keep flexibility and to keep our costs well managed in terms of interest rate.

[Keith Bachman:]

Got it. Okay, that’s it for me. Thanks.

[Operator:]

Our next question comes from Joe Vruwink with Baird. Please state your question.

[Joe Vruwink:]

Great. Hi, Steve and Tom, best of luck in your new endeavors. I wanted to ask, it’s been a unique situation in the industry because all the major software vendors have kind of come out and been pretty active and just talking about what they’re seeing on their platforms, and I’m wondering when you kind of span the industry and you appreciate how a RealPage platform customer is doing maybe versus some of the results you’re hearing about on the competitor’s platform, are you able to make a case that the breadth of your platform or just the actual results of your customers, they’re actually fairing better right now than maybe some alternatives?

[Steve Winn:]

I think you can make that case now. And we constantly are monitoring how well our customers are doing through what we call customer business reviews where we compare their performance using our platform to their peer groups, and the peer groups will include some customers that are on RealPage and some that aren’t. So generally, I feel pretty good about the health of the industry. But we do, of course, have this uncertainty with respect to the stimulus that we’ll see going forward. So very positive right now. I expect August, we’ll be a little bit shocked because I don’t think these stimulus checks are going to get out at the first of the month. But hopefully by mid month, they will be in the hands of renters, and we won’t have a problem. But right now, it’s unknown.

[Tom Ernst:]

And Joe, I think that’s something that our sales team is very adept at showing the customers, whether it’s our AI screening product, our revenue management products and these customer business reviews to show them exactly where their properties in which they’ve deployed it, how much lift they’ve seen, how much they’re outperforming their comp set. And that’s something we’re actively ramping. And in this quarter, we’re able to shift to a high rate of virtual delivery. And I think something we’re getting even faster at to deliver more and more CBRs over time to really help the customer get engaged and get the effective technology into more properties.

[Joe Vruwink:]

And if I can squeeze in one more. The hiring in the sales team has continued to be really strong. And as I kind of thinking about getting a new rep ramped up and productive, I think, entering 2021, it seems like a lot of these new hires are going to be hitting the ground running. Is the thought that maybe you’ll have productive reps in 2021, where the argument of improving yield and what’s still maybe going to be a no rent growth environment is the thinking that maybe you’ll be able to accelerate a RealPage organic growth? And have you given any thoughts, 10% to 12% still the right number? Or are all these factors coming together where it should actually be a bit better than that if you execute?

[Tom Ernst:]

Yes. Thanks for the question, Joe. And the idea obviously of investing in sales and marketing and the sales force, like I highlighted, and we did add 50 salespeople. It’s definitely about driving organic growth. So it’s a little early to project how that’s going to support the growth rate next year. We’ll hope to do that for you in a quarter or two, but that is absolutely the intent and purpose. And while clearly, we want them to be productive next year, we’re not happy with waiting until next year. So as we decompose where those 50 salespeople are going and what we’re doing operationally from a sales perspective, like the customer business reviews to the last question we just answered, the sales organization has responded really well with sales delivery in an all virtual environment in delivering more sales meetings, about two-thirds of those salespeople have come in on the early part of the sales funnel and the lead generation role to really try to supercharge this virtual selling environment. So we actually intend to try to drive productivity out of the expansion that we did in the second quarter this year, not next year. And I’ll try to help us close out the year with strong bookings.

[Joe Vruwink:]

That’s great. Thank you very much.

[Tom Ernst:]

Thank you.

[Operator:]

Ladies and gentlemen, that concludes today’s meeting. All parties may now disconnect. Have a great day.