RealPage Inc
Q1 2018 Earnings Call Transcript

Published: 7 May 2018

[Operator:]

Good day and welcome to the RealPage First Quarter 2018 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rhett Butler, Vice President of Investor Relations. Please go ahead.

[Rhett Butler:]

Thanks, Phil. Good afternoon and welcome to the RealPage financial results conference call for the first quarter ended March 31, 2018. 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 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, May 3, 2018 and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties is contained in our annual report on Form 10-K previously filed with the SEC on March 1, 2018 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 most 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 financial 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 will hand the call over to Steve.

[Steve Winn:]

Thanks, Rhett. Good afternoon, everyone and thank you for joining our first quarter conference call. 2018 is off to a great start highlighted by strong client adoption levels, strong sales bookings, especially in suite sales and our continued forward progress towards our North Star of innovation and simplification. 2 years ago, we established our 2020 objective to achieve $1 billion in revenue and $300 million of adjusted EBITDA. Our first quarter results give us more confidence that this objective will be achieved ahead of schedule. Bryan will provide more details on the financial results momentarily. But as a quick summary, every metric of performance including revenue growth, margin expansion and free cash flow growth exceeded our expectations in the quarter. More importantly, due to the exceedingly strong first quarter results, we have raised our full year expectations. I am proud of the whole team and our ability to execute across our headline financial metrics. The entire company is really honing in on our North Star of innovation and simplification, leveraging our financial and cultural investments, not only to drive steadily towards the achievement of our 2020 objective but also to position RealPage to continue to grow beyond 2020. Today, I will review our client landscape, discuss progress toward our North Star and briefly highlight the industry’s macroeconomic trends. We are a leading global provider of software-as-a-service and data analytics to the rental real estate market. Clients use our platform to improve operational returns through increased revenue, reduced expenses and less risk. And more recently, we are beginning to use our platform to help investors more prudently place and harvest capital. We collect detailed information in real time for over 13 million rental units. So we believe we are able to glean insights into the rental housing markets that our competitors simply can’t match. We monetize our data advantage through benchmarking, enabling clients to compare at an extremely granular level how each of their properties is performing against a statistically relevant peer group. We monetize our data advantage by accurately predicting future performance of key metrics based on millions of data points. We believe we offer unparalleled precision in these predictions because of RealPage’s depth of data and the data science teams needed to exploit data in this way is unmatched in our industry. Finally, we monetize our data advantage through predictive analytics and artificial intelligence to recommend actions that should be taken in the right priority, based on analysis of how millions of data inputs influence outcomes. The size and statistical relevance of our dataset, collected over the better part of two decades, is becoming too large to ignore. For example, our dataset continues to influence adoption of our BI platform. Invesco, an institutional owner of over 33,000 units, recently selected the RealPage BI solution to seamlessly manage asset performance for its multifamily portfolio across its various operators. Critical to Invesco was RealPage’s depth of data, customized dashboards and the ability to normalize data aggregations across different operating systems. In addition, the ability to measure performance with precision, utilizing RealPage’s lease transaction benchmarking, tailors nicely with Invesco’s operational strategy to outperform the market, maximizing returns for their investors. Adoption examples similar to this make it clear to me that our data-oriented vision is resonating with large institutions. We believe our data fluency, combined with the flexibility of our solutions, can begin to catalyze industry adoption towards the RealPage platform, culling the number of disparate point solution vendors. Supporting this, sales bookings growth for the quarter accelerated and continued to outperform revenue growth while sales rep productivity growth was also solid despite the significant addition of organic and acquired sales reps compared to last year. Our top 10 deals in the quarter represented nearly $10 million in booking with an average deal RPU of nearly $100. Initial suite sales for the quarter, which contain our core ERP solution, continue to experience significant traction in terms of overall size and represented an average deal RPU of approximately $90. The booking dollars derived from our suite sales during the first quarter represented nearly half of the total booking dollars generated through suite sales for all of 2017. These trends continue to validate our bundled platform approach in addition to our flexibility around clients with ERP and accounting solutions outside of the RealPage ecosystem. For example, during the quarter, we converted one of our primary competitor’s top three revenue management clients to our platform. Carroll Management, a manager of over 30,000 units, recently began the process of deploying our revenue management solution. Our platform’s key differentiators from Carroll’s perspective were our flexibility of comps, ability to realize true market outperformance, the strength of our data set and the ability to proactively manage ramps based on precision forecast. All of these features align with Carroll’s strategy to optimize yield across their assets. In addition, the RealPage platform’s flexibility with third-party property management and accounting systems enables Carroll to upgrade functionality on their own terms. Next, we continued our swift progress towards our North Star of innovation and simplification. Organic innovation is a core aspect of our North Star and its taking root broadly across our platform. This has positioned us favorably towards our goal to grow revenue organically by 10% to 12% each quarter and Q1 came in right on plan at 11% organic growth. Let’s discuss some of the innovation at work with several product area examples. First, our overall spend management solutions represent one of the largest revenue streams within the property management category and we continue to see clients focusing on expenses. Our spend management solutions offer newly streamlined functionality around inspections, mobile capabilities and expense visibility. This functionality not only enhances the resident experience but also creates operational efficiencies by giving on-site staff access to do their job on the go. Our mobile app has achieved one of the fastest adoption rates we’ve ever seen, doubling growth and achieving an installed base of over 1 million units in under a year. We believe property managers and owners were focused on expenses too late during the last downcycle. However, now we see owners being much more proactive in expense management to anticipate market softness. We’re now more than 2.5 years past this economic cycle’s peak rent growth of 5.3% in the third quarter of 2015. A second example in leasing and marketing, we are driving continued organic innovation as well. Recently, we released new features and functionalities for our websites and online leasing solutions. We are doubling the number of property website templates and have integrated real-time analytics on traffic and ROI on spend. This was achieved through conversion optimized designs and enhancements to the platform architecture, which included optimizing schema, mobile optimization and customer-facing abilities to add granular SEO keywords where search engines expect them. Compared to major competitors in our industry, we believe our website solutions exhibit superior SEO performance. We recently measured our website performance for one of our largest clients compared to a major competitor and determined in the first 3 months that the client experienced a 25% increase in users, a 19% increase in sessions and a 15% increase in page views. Our online leasing solution recently released an entirely new platform, which we believe is the best experience in the marketplace. Prospective renters can apply, be screened, pay and sign a lease online from any device, including mobile phones and tablets, without ever stepping foot on the property. Clients like Blue Ridge companies have been successful in driving the completion of 85% of all leases online through the RealPage platform. In another example of innovation, we are hard at work refining our property management system, agnostic CRM to include deeper analytics for leads by channel and leasing agent effectiveness. The latter functionality is possible due to the size and scale of our data, but most importantly, the enhanced interoperability between our revenue management and leasing and marketing platforms. Perhaps the most significant area of organic innovation is within our asset optimization platform. Over the course of the next month or so, RealPage intends to deliver a game-changing solution called underwriting analytics, which will be aimed directly at monetizing the transactional side of multifamily real estate. Property owners, operators, investors and lenders need to answer four questions. What is an asset worth? What are the appropriate comps? How is the asset performing? And how will this asset perform in the future? With underwriting analytics, the industry will soon have access to the premier data platform in the industry that answers those questions accurately and, most important, quickly. Underwriting analytics is a great example of what we can achieve when we maintain focus on our North Star. Both innovation – both innovative and extremely simple to use underwriting analytics will enable clients to manipulate supply and demand assumptions using our YieldStar forecasting engine to see the impact on valuation in seconds. This will be the first self-provision product that we’ve released. You simply will go to realpage.com, click on a map and you can underwrite assets in a matter of a few seconds anywhere in the U.S. This innovation was possible only through the combined power of RealPage’s vast dataset and extensive data science teams. As many of you know, our innovation focus includes a consistent M&A strategy. Accordingly, on April 20, we announced an agreement to acquire ClickPay, a comprehensive electronic payment platform, servicing 2.3 million units across the multifamily HOA condominium and co-op segment of real estate. ClickPay increases our total addressable market by nearly $1 billion by expanding RealPage’s footprint into the HOA owner-occupied segment of real estate. ClickPay also broadens our presence in the New York metropolitan market. As a point of reference, New York is a notoriously difficult market to operate in and we have had only modest success penetrating this market historically. So, we expect the acquisition of ClickPay coupled with our acquisition of On-Site last year to have a big impact in the large and important New York market. Most importantly, ClickPay, in concert with our recent acquisition of On-Site, solidifies the integration of our front end leasing platform into third-party property management and accounting systems. Ultimately, we believe our scale, combined with the ClickPay platform, gives RealPage a strategic position to drive deeper client penetration across almost all real estate categories. Moving on to macroeconomic trends, according to our data, occupancy for the first quarter was 95.0%, in line with the first quarter of last year. Annual rent growth registered 2.6%, one of the lowest levels of increase since the third quarter of 2010. According to our Chief Economist, Greg Willett, while some loss of apartment market performance momentum is normal when cold weather in much of the country discourages household mobility, the occupancy downturn in early 2018 is pronounced. With so much new supply coming on stream, even a short period of sluggish demand can do some real damage. It’s difficult to maintain pricing power in such a competitive leasing environment. While demand was sluggish in the first quarter, robust job growth over the past few months points to the potential for new household formation and substantial apartment demand during the upcoming prime leasing season. So while the market is softening in a material way in many parts of the country, we still see rental housing as a great place to invest with overall continued strength moderated in selected markets with the abundance of new supply. In summary, our first quarter results indicate a strong start to 2018 as we focus on our North Star of innovation and simplification. This will be a core principle guiding our strategy and culture. Our team is executing effectively to drive long-term growth through focus on our North Star, and I believe we can build on the financial and operational momentum we’ve achieved during the first quarter to accelerate value creation for employees, clients and shareholders. With that, I will turn the call over to Bryan.

[Bryan Hill:]

Thanks, Steve and good afternoon everyone. Today, I will review our first quarter financial performance and progress towards achieving our 2020 financial objectives. During the quarter, our strategic focus and financial discipline helped drive some of the most impressive financial results we have achieved. Total revenue grew 31%. Adjusted EBITDA margin expanded over 270 basis points and operating cash flow grew 59%, excluding the benefit from changes in restricted cash of nearly $16.5 million. In addition, sales bookings growth significantly outpaced total revenue growth and was broad-based across our four product family groups. As we discussed on our year end earnings update, we are building a culture that emphasizes and rewards, innovation that helps us grow organically and simplicity, which helps us become an easier company to do business with, thereby improving our scale and profit margins. During the first quarter, we continue to make progress in these areas. Our past investments have resulted in organic revenue traction in certain areas, some of which Steve discussed. Total organic revenue growth was 11% compared to the prior year driven primarily by our asset optimization and resident services product family groups. During the quarter, we continue to invest across our platform in areas such as our Unity initiative and enhanced product capability and scale related to data analytics, Kigo and our financial product suite. Shortly after quarter end, we reached an agreement to acquire ClickPay, which demonstrates the effect of our capital allocation and M&A strategies have on our long-term scale and efficiency objectives. We are also in the midst of beta testing underwriting analytics, a product possessing great growth potential, underscoring our unique ability to combine M&A efforts with innovation to deliver best-of-breed solutions. These examples highlight our ability to drive innovation for our clients and returns for our shareholders. Related to ClickPay, we are very excited with the opportunities presented by this acquisition. ClickPay expands our TAM close to $1 billion by opening a new real estate market, the owner occupied HOA and condo segment and improves our presence in New York City, a massive rental market that historically represented a very small portion of our total ACV. Also, ClickPay expands upon our payment processing scale, provides revenue synergies into the ClickPay installed base and provides revenue synergies into our payment solutions installed base. ClickPay is expected to contribute revenue of $23 million for the remainder of 2018, which represents growth of 45% for the full year of 2018. During the quarter, we also continue to execute against the operating objectives for our 2017 acquisitions. Each acquisition exceeded our revenue expectation. In addition, we made significant progress with our integration efforts. Much of the back office integration is fully complete as well as the client-facing integration initiatives. The IT integration effort is nearing completion for both AxioMetrics and AUM, IT integration for LRO and On-Site are both on schedule, with expected completion in the back half of 2018. We have targeted a 10x adjusted EBITDA purchase price valuation for our 2017 acquisitions as we exit 2018. This objective is coming more into focus as we exit Q1 with a run-rate adjusted EBITDA purchase price valuation of just under 13x. Now, for quarterly operational performance, on-demand revenue grew 32% compared to the first quarter last year. Units grew 19% compared to the prior year quarter. Organic unit growth in the quarter was above the recent trends, growing 5% compared to the first quarter last year. Revenue per unit was over $59 and grew 10%, despite the dilution from the significant growth in total units. Annual client value was nearly $780 million, representing 31% growth. The primary drivers of total on-demand revenue performance were continued, consistent growth from property management at 12%, which is a slight acceleration from recent levels; continued strong growth from resident services of 27%; significant growth from asset optimization of 78%; while leasing and marketing grew 42%. Property management growth was driven by strong performance in our spend management solution as well as solid adoption of our OneSite property management and financial suite solutions. Resident Services benefited from strong growth from our payments and resident Utility Management solutions, which include the AUM acquisition and portions of the On-Site platform that are more resident-focused. Our Resident Portal also continued to show strong growth. This product family group continues to deliver mid-teen organic growth. Leasing and marketing benefited primarily from the acquisition of On-Site manager and the consumer-facing portions of the LRO platform. Our website and online leasing solutions achieved solid growth as well. We continue to experience some headwind from our contact center. However, recent new sales bookings and traction in the senior living space, where, we believe, we are the go-to provider, indicates that this product solution’s performance is improving. In addition, we have several product innovations for this solution expected to be released throughout 2018 that we believe will further differentiate us from a competitive field and drive future new sales bookings. Asset optimization continues to show evidence of market acceptance for data-driven solutions. As a reminder, the acquisition of AxioMetrics and LRO are included in this product family group. Organic growth of approximately 20% was driven by solid growth from our revenue management, data analytics and BI solutions. As Steve mentioned earlier, we are excited about our future growth potential for this product family group as underwriting analytics represents our first major solution to monetize the transactional side of multifamily real estate. And as I alluded to earlier, it’s also a great example of how our M&A program, contributes to organic innovation. Before moving to profitability, I want to briefly review data we’ve provided to address common questions we receive from investors. As you can see from the slides, our unit penetration by solution across our four product family groups is quite underpenetrated into our installed base of 13.2 million units and more so when compared to the market opportunity. In addition, while we do not routinely measure product family group gross margin as shared costs are difficult to allocate to a particular product family group, we have provided estimated relative gross margin by product family for illustrative purposes. In a general sense, we expect property management and asset optimization to carry the highest gross margin with the resident services and leasing and marketing each carrying a higher direct cost component. Our profitability performance continues to track towards our $300 million adjusted EBITDA objective. We achieved $54.2 million of adjusted EBITDA, a margin of nearly 27% reflecting growth of 46%. Gross margin was nearly 66%, excluding depreciation, amortization and stock-based compensation and was accretive to aggregate margin expansion by over 190 basis points. Gross margin expansion was driven primarily by synergies achieved related to our 2017 acquisitions, more efficiently leveraging our fixed costs such as IT and also the result of revenue mix where client adoption has shifted more to a margin-rich product solution. Total operating expense on a non-GAAP basis for the quarter was 41% of revenue. As we look at the components, product development expense as a percent of revenue was 13%, up nearly 130 basis points, primarily related to investments in innovation and incremental acquisition costs. It’s important to note we have the ability to increase product development funding, which represents investments in our future and still deliver 270 basis points of adjusted EBITDA margin expansion across the business. We expect to realize additional acquisition synergies through our integration process, which should result in improved product development leverage in the back half of 2018. Sales and marketing expense as a percent of revenue was 17%, declining over 120 basis points compared to the prior year. The leverage was a result of the scale we’ve built in our sales and marketing engine and lower sales commissions, resulting from the adoption of ASC 606, partially offset by incremental costs from acquisitions and modest organic sales headcount growth of 22 sales team members. Including our acquisitions, we added 57 team members while continuing to drive higher sales force productivity per direct rep by over 10%. We expect to continue to modestly invest in the sales team throughout 2018 with full year rep growth slightly outpacing our target organic revenue growth range of 10% to 12%. General and administrative expense as a percent of revenue was 11%, down over 130 basis points compared to the prior year. Leverage was driven by scale across our administrative functions, partially offset by incremental cost from acquisitions and a nonrecurring charge relating to ongoing litigation. Now moving to cash flow performance, during the quarter, we generated over $54 million of operating cash flow, which does exclude a $16 million benefit resulting from changes in restricted cash. We expect operating cash flow of approximately $195 million for the full year, excluding changes in restricted cash. Capital expenditures were nearly $13 million, representing approximately 6% of revenue and tracking towards our 5% of revenue longer-term goal. We expect free cash flow growth of approximately 60% for the full year of 2018. We exited the quarter with debt of approximately $710 million adjusted for the issued value of our convertible notes. This represents debt to pro forma EBITDA leverage of 3.4x. Adjusting for the acquisition of ClickPay on April 20, debt to pro forma EBITDA leverage is 3.8x. As we have previously stated, we are comfortable with carrying leverage between 3x to 3.5x. We are also comfortable stepping up leverage an additional turn of adjusted EBITDA for the right acquisition opportunities. This anticipates that our strong cash flow profile and our ability to grow adjusted EBITDA enables us to reduce leverage very quickly. That said, by the end of 2018, we expect to utilize both of these attributes of our strong financial model to drive leverage down to 3x. Now, moving to guidance which includes the ClickPay acquisition with just over 8 months of contribution, for the second quarter of 2018, we expect non-GAAP revenue in the range of $214 million to $216 million. Adjusted EBITDA is expected to be $55.5 million to $57 million and non-GAAP diluted earnings per share, is expected to be $0.37 to $0.38 per share. For the full year of 2018, we expect non-GAAP revenue of $860 million to $868 million. Adjusted EBITDA is expected to be $223 million to $228 million. And finally, non-GAAP diluted earnings per share, is expected to be $1.46 to $1.51. This concludes our prepared comments. I would like to now open the call up for questions.

[Operator:]

Thank you. [Operator Instructions] The first question comes from Monika Garg with KeyBanc. Please go ahead.

[Monika Garg:]

Hi, thanks for taking my question. Steve, one question we get a lot is like how does this rising interest rate environment impact your customers and in turn how could it impact you?

[Steve Winn:]

Well, driving interest rates will perhaps dampen some enthusiasm in the capital markets to acquire assets, but I don’t think there is enough movement here to make much difference. We really don’t think our business is sensitive to any great extents on incremental increases in interest rates.

[Monika Garg:]

Then you talked about this underwriting analytics platform, seems very exciting product, can you talk about when you expect to release it? Have you talked to any customers regarding the product? Any feedback you have received, which you can share?

[Steve Winn:]

While underwriting analytics is in beta test with several large institutions and we are getting great feedback on it and we expect to release it in the next 30 days.

[Monika Garg:]

Alright. Just last one any plans to enter commercial real estate market? And if you decide, will you like to develop solution in-house or will you like to acquire as asset? Thank you.

[Steve Winn:]

Well, we have a commercial solution and we are having good success with that. It’s targeted to the middle-market of owners of commercial real estate or multifamily owners that have retail space in their apartment community. I think this is a big attractive opportunity for us and we are pushing forward, but not going into the institutional larger commercial operators at this point.

[Monika Garg:]

Thank you so much.

[Operator:]

Okay. The next question comes from John Campbell with Stephens Inc. Please go ahead.

[John Campbell:]

Hey, guys. Congrats on a great quarter.

[Steve Winn:]

Thanks, John.

[John Campbell:]

Yes. So you guys are going to get the other piece of the ClickPay, I guess the annual revenue for the first couple of months of next year. And if we assume kind of low-teens organic growth for next year, I think you are going to be kind of close to your 2020 revenue target. You guys – it sounds like it feels pretty stale at this point. But I guess the revenue path is pretty clear, but on the margin side, you get a little bit of compression from ClickPay this year, but I guess, going out to ‘19 and ‘20, you got to get 200 bps or so each year. Bryan, maybe if you could just spend a little more time just kind of walking through the moving pieces and how you are going to get that lift each year?

[Bryan Hill:]

Sure. You are absolutely right, John. Well, we had nice margin in Q1 close to 27%, representing a significant margin expansion year-over-year. You will see for the next three quarters, some slight compression in margin from ClickPay. ClickPay opens up $1 billion TAM for RealPage. It’s a market that we want to continue to go after, the HOA market as well as the rental market in New York City. So, there is still some sales and marketing cost and investment that we will make to exploit that opportunity. So as we looked at our 2017 acquisitions, which we felt and we are on track to achieve a 10x purchase price valuation, ClickPay will take a bit more time to get to that level as we are investing and building a market, but having said that, the midpoint of our guidance does have 190 basis points of margin expansion for full year 2018, that is inclusive of a 60 to 70 basis point drag driven by the ClickPay acquisition. To achieve our 2020 objective, our thought process was a gross margin of 65% to 66%. And as you can see, with our Q1 performance, we’re effectively there from a gross margin perspective. From a product development point of view, our thoughts have been that we would be in a 11% to 12%, 10.5% to 11.5% of revenue range. We are investing in 2018 in innovation that will drive new product, that will drive organic revenue growth as well as simplicity, which will drive further margin expansion in the future. So, we will see leverage on product development in 2019 and ‘20 that will bring us into that range that I just mentioned the 10.5% to 11.5%. Let me skip to G&A for a moment. I really believe that we will be at a 9%, maybe 9.5% in 2019, which is in line with where we would expect to be once we are achieving our 2020 objective of 30% EBITDA margin. We are seeing a lot of progress in that area. I mean, we have really reached an inflection point now where operationally we can scale and drop considerable revenue to the bottom line without expanding our G&A cost. And that leaves us with now sales and marketing, which for the quarter, sales and marketing on an adjusted EBITDA basis was slightly over 16% of revenue. For the full year, it will be just under 17% and achieving our 2020 objective we will be in that 16% range. So as you can see we have great line of sight into each of our operating line items to achieve the 2020 objective. And we are doing this while we are investing for the future, which is really what’s impressive about the financial model that we possess.

[John Campbell:]

Absolutely. It seems like you have a pretty clear plan there. And last question for me on ClickPay, it seems like a pretty good deal for you guys. How many unique units is that going to add for you guys? And then the 20% penetration in payments that seemed – I thought you guys had bigger penetration than that. So, it seems like you got a lot of opportunity there, but where does that take you kind of pro forma penetration once you get that in-house?

[Bryan Hill:]

So ClickPay possesses 2.3 million units. The majority or a little over half of those units are related to the HOA and condo space. And so those will all be incremental to RealPage and currently the products that we have for that segment is payment processing. We have many products that we can port over, but will require some development and some investment dollars in order for that to occur. As it relates to their multifamily units, the majority of those will be crossing over with other units that we have within our installed base. We haven’t disclosed yet exactly the incremental units that will come on the multifamily side, but we will be doing that on our next quarterly earnings call.

[John Campbell:]

Okay, great. Thanks, guys.

[Operator:]

Okay. The next question comes from Stephen Sheldon with William Blair. Please go ahead.

[Stephen Sheldon:]

Yes, hi. Thanks for taking my questions. I guess just can you maybe talk about the factors that are leading you to increase annual adjusted EBITDA guidance? I know some of that’s from flow-through from first quarter outperformance. But yes, I figure with ClickPay being immaterial I guess are you more optimistic about underlying margin trends this year or I guess higher than expected acquisition synergies, just any color on what’s driving that?

[Bryan Hill:]

What we are seeing is, for example, in the first quarter, we dropped 36% contribution margin on our year-over-year revenue growth. And as we project out the remainder of the year, we see continued traction in that. I mean, we have taken over the last several years the opportunity of investing in our sales force and so now our sales force has gained traction. We will probably add organically 10%, 12% to our sales force. So a lot of the investment – the major upfront investment in our sales force is behind us. I mentioned previously that we are seeing a lot of leverage on the G&A line and we are seeing a lot of leverage that’s occurring in our gross margin. So, it’s just the operating performance of Q1 in pulling forward a lot of the opportunities that quite honestly we are expecting to see more in the back half of the year. And you also mentioned the 2017 acquisitions, we are really ahead of the pace that we were expecting on those acquisitions given the run-rate purchase price valuation for the first quarter was slightly under 13x when we were hopeful to be at 10x as we exit 2018. So again, we are ahead of the pace on our acquisition synergies for the 2017 acquisitions. And really, what’s driving that is RealPage, while M&A issues another part of our growth strategy, it’s another part of our innovation strategy, we are becoming very adept at integrating acquisitions and we have a great playbook to do this and that has or led us rather into achieving synergies much sooner than what we were expecting.

[Stephen Sheldon:]

Okay, that makes a lot of sense. Yes, I guess now that you have ClickPay serving the HOA space, how do you think about the next steps there? I think you mentioned that you need to build out some more HOA kind of centric products, what about the sales force? Do you need to build out an HOA focused sales force more so than ClickPay may already have?

[Steve Winn:]

ClickPay has already got a sales force that’s addressing the HOA market that – and they are having tremendous success in that market. It’s astounding how fast they have grown there. RealPage will over the course of the next couple of years be adding additional product that addresses the unique needs of the HOA market. Many of these products will just be adaptations of what we have already built in multifamily, but with a slightly different emphasis on what’s important to HOA that may not necessarily be important to multifamily. We think it’s an interesting market. We believe the TAM on it’s about $1 billion, about $60 a unit ARPU.

[Stephen Sheldon:]

Okay, thanks. Appreciate it.

[Operator:]

Okay. [Operator Instructions] The next question comes from Brian Essex with Morgan Stanley. Please go ahead.

[Brian Essex:]

Hi, good afternoon and thank you for taking the question and congrats on the results. I was wondering if I could touch a little bit, one quick question on ClickPay from an IP perspective, what they bring to the platform. Is it more of an ACH type of platform? And was this more of a – it sounds like more of a customer acquisition sales force acquisition transaction instead of an IP transaction?

[Steve Winn:]

Well, it turns out there is some IP there that is very interesting. ClickPay had built two capabilities that we did not offer in our RealPage payment platform. One was a lockbox capability and the second was the ability to capture online banking transactions directly from the banks without having to convert those into IRVs, which is the way historically it’s been done. With those two capabilities, we can now offer to our multifamily clients a 100% paperless payment platform so that they can eliminate the need for check scanners at the site, which are still being used to capture a small number of checks. So, while I think the major benefit here to ClickPay is in customer acquisition area, I also am very pleased with the additional functionality that we pickup through ClickPay, which we will push into the multifamily market as fast as we can.

[Bryan Hill:]

And Brian as I indicated, I mean ClickPay is growing very fast, 2018 revenue growth of about 45%, at least that’s what we have in our implied – is implied by our guidance. It’s exciting that it’s a market share extension and brings us into the HOA market, but what also is exciting is as it relates to multifamily is their ability to interface with third-party property management systems. Today, the RealPage payment solution works best as you would expect with the RealPage property management system. And if you think through On-Site, the acquisition that we completed last year which from an online leasing and background screening perspective that again was a third-party property management system opportunity for us. Combining payments through ClickPay with that effectively solidifies the front end for RealPage as it relates to all property management systems.

[Brian Essex:]

Got it. And then finally just one other one, the Invesco deal that you noted really interesting, how much institutional penetration do you have like that and what’s the potential to use that as a reference deal to expand your institutional penetration?

[Steve Winn:]

We have very sizable penetration in the institutional market. Invesco was just one example. Candidly, most of the larger institutions that we do business with would never consent to use their name. I think Invesco is pretty proud of the results they are getting with the platform. Institutions are important, because they can influence the behavior of operators. They typically don’t mandate what system an operator uses, but they have a lot of influence and so the more business that we can drive into the institutional market, the more favorable referrals we will get into the operations or operators. So, we think institution is important.

[Brian Essex:]

Got it. And then maybe just squeak one last one in, margin expansion, particularly gross margin expansion, really strong in the quarter, so great job on that. How might we expect that to run throughout the remainder of the year? How much carry forward and how much might be more seasonal in nature?

[Bryan Hill:]

Yes, seasonal in nature isn’t a major driver. Again, at the midpoint of our guidance for the full year, 190 basis points of margin expansion over 2017. You will see likely a slight dip from the Q1 margin in Q2 as it relates to ClickPay coming on. A bit offsetting that in the back half of the year is further synergies from our 2017 acquisitions and again just dropping 35% plus contribution margin on our revenue growth.

[Brian Essex:]

Right. Okay, very helpful. Thank you.

[Operator:]

The next question comes from Patrick Walravens with JMP Securities. Please go ahead.

[Patrick Walravens:]

Great. Thank you. So my first question would be how do we think about these sort of big platform deals that you are doing, what does it mean and how do these more recent acquisitions fit into it?

[Steve Winn:]

Pat, let me clarify the question. Are you talking about...

[Patrick Walravens:]

Like your – like WinnResidential, that was one I think, right?

[Steve Winn:]

Alright, so client suite sales, we are – the sales force is aggressively selling suites now to this market, so that the ARPU that we get from a single booking is going up and we – for example in the first quarter we saw suite sales averaging, I believe $90 plus of ARPU right out of the box and this has historically not been the way we sold. We would sell three or four solutions and then land and expand over time. Now we are getting a much larger entry point because of the bundling of multiple products into a suite. So this is a core focus of the sales team.

[Bryan Hill:]

And Pat, let me put a little more context around that. Leading into 2016, a new logo would typically come on the RealPage platform with an ARPU of $20 to $30. And as we look at our – the suite sale strategy taking traction in 2017, collectively, new logos were coming on in 2017 closer to a $45 or $50 ARPU. And that was, in large part, driven by these suite sales. Now what’s important is what we saw occur in Q1. The actual booking dollars that we would characterize as a suite sale, we achieved in the first quarter of 2018 about half of the booking dollar value for all of ‘17. So what does that mean? What that means is greater adoption of our platform, that means as we talk about simplicity and how we operate that affords us the ability to implement more products out of the gate more quickly, which results in quicker revenue recognition and ultimately, higher organic growth. Our bookings traction that we experienced in the back half of ‘17 and it continued significantly into the first quarter of 2018 has led us to have the confidence that in the back half of ‘18 our organic revenue growth should accelerate from the 11% level, where we are at, to reaching closer to 13%, which is a 200 basis point improvement in the back half of the year.

[Patrick Walravens:]

Great. Thank you. And then Steve, can I ask you I mean you have been cranking away here for 20 years and have taken it zero to close to $900 million. Can I just ask sort of what your future plans are? Are you starting to think about succession planning or is that not really coming up yet?

[Steve Winn:]

I am just trying to keep up with you, Pat.

[Patrick Walravens:]

That’s not hard.

[Steve Winn:]

I am having a good time right now. This business is doing great. And I don’t have any plans at this point to pack up and go home if that’s what the question is. We do have a good strong leadership team under myself with contenders for CEO at some point in their future. And I believe there is candidly lots of CEOs that could run a business this size that would be interested in coming to RealPage should I ever decide to exit the business.

[Patrick Walravens:]

Okay, great. Thank you.

[Operator:]

Okay. The next question comes from Mark Schappel with Benchmark. Please go ahead.

[Mark Schappel:]

Hi, thank you for taking my questions and congratulations on the quarter. Steven, I was wondering if we could just start off if you could provide an update of your Unity initiative. Specifically, give us a little bit of an idea of what percentage of products have incorporated Unity features and capabilities and maybe how much work is left?

[Steve Winn:]

I don’t think you should think of Unity as a project that has a beginning and an ending. Unity is a much broader initiative designed to drive dramatic simplification into our business processes through a single user authentication for all products, which is essentially complete to a unified look and feel to all products to use of shared services where everyone can tap into the same service, we don’t build them independently based on each product solution to a new way of selling that adopts a benchmarking data in the sales process, to a much streamlined implementation capability. We are really focusing on how do we drive this margin beyond 2020? And we think it needs to be done in the context of radically simplifying this business and that’s what Unity is all about. We are spending – what it is 160...

[Bryan Hill:]

During Q1, collectively on innovation and Unity, we had 130 basis points of margin that was invested in that area. For all of 2018, we expect that to be kind of in a 90 basis points to 100 basis points range, which was similar to 2017. Unity is the opportunity for RealPage to just continue to scale the business. We haven’t provided formally, projections beyond 2020, as we have pointed out on this call. As a few of the analysts have even inferenced on this call that the 2020 objective is in sight and so what’s beyond 2020. And Steve and I will probably be more prepared to provide some color around that as we exit the year, but Unity is certainly a big part of that.

[Mark Schappel:]

Great. Thank you. And then a quarter or two ago, Steve, I believe you discussed or introduced your new simpler pricing model for Kigo – the Kigo Marketplace. And granted it’s still early, but I was wondering if you could just give us an update of how well that’s being received?

[Steve Winn:]

I think Kigo has done fantastic. We actually started a user conference in Europe called Kigo World and it was well attended and the market is very receptive to the new concept of charging for our entire Kigo suite based on a percentage of booked revenue each night. We think there is a lot of room to grow in this area and continue to invest here.

[Bryan Hill:]

I am very excited about the Kigo opportunity. Kigo is still a small percentage of our revenue. It’s an area where we are investing. So profitability, it’s basically a drag. But to give you some understanding, our new sales bookings in Q1 related to Kigo represented close to a 50% of the run-rate revenue. So there is a lot of traction coming out of Kigo. We are seeing our investment dollars paying off. It’s another example of RealPage acquiring a couple of businesses, then applying RealPage innovation with an expectation of future organic growth. So there is lots more to come on Kigo. It’s still early and still a small percentage of our revenue. The management team is very excited for this product.

[Mark Schappel:]

Great. Thank you.

[Operator:]

Okay. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.