RealPage Inc
Q2 2018 Earnings Call Transcript

Published: 5 Aug 2018

[Operator:]

Good day, and welcome to the RealPage Second Quarter 2018 Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rhett Butler, Vice President of Investor Relations. Please go ahead.

[Rhett Butler:]

Thanks, operator. Good afternoon. Welcome to the RealPage financial results conference call for the second quarter ended June 30, 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, August 2, 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 quarterly report on Form 10-Q previously filed with the SEC on May 10, 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.

[Stephen Winn:]

Thanks, Rhett. Good afternoon, everyone, and thank you for joining our second quarter conference call. Q2 continued the momentum we experienced in the first quarter with total non-GAAP revenue growing 33% and adjusted EBITDA growing 45%, representing margin expansion of 210 basis points. I'm particularly pleased that organic revenue growth accelerated in the second quarter to nearly 12% compared to the prior year period and is expected to accelerate further in the back half of 2018. Our investments in innovation and simplification, strong bookings and acquisitions made in the last 12 months all give us confidence that we will surpass our objective of $1 billion in revenue in 2019, one year sooner than expected, and surpass our adjusted EBITDA target of $300 million during 2020. Our recent RealWorld User Conference centered on our North Star of innovation and simplification and was a great success with record attendance. For those in attendance, it was easy to see RealPage's vision of the future and feel the excitement from our client base. Many clients that I've talked to expressed their intention to increase usage of the RealPage platform in the future. Clients are excited about the opportunity to transform the way they do business, increase resident satisfaction and drive higher returns on their property investments. Today, I'd like to discuss our strategy to accelerate the growth of our Leasing and Marketing platform as well as our recent agreement to acquire LeaseLabs, highlight some exciting innovation in other areas of our platform and briefly discuss the industry's macroeconomic trends. Before we get into the particulars, I'd like to provide a little color on the marketing landscape within the multifamily industry. Some recent trends are driving new industry behaviors that RealPage is well positioned to benefit from. As most investors know, ILSs, or Internet listing services, have consolidated dramatically over the last couple of years. What used to be dozens of ILSs that property owners utilize to generate leads and exposure within a particular market has now dwindled to only a handful. For property owners, this means there's a tremendous amount of real estate on the front page of Google to leverage an organic digital presence that highlights the property's brand. Social media is also providing more opportunity for owners to build organic digital presence. Google is making life more difficult for aggregators. They have now positioned themselves on the front page of apartment searches, typically in front of the Internet listing service. Within their search window, Google is providing ways to search more directly for different types of apartments, different price ranges and different amenities. The apartments that meet their search criteria appear on a map right next to the search window. Google is effectively squeezing the aggregators out of the front position. They link to the best organic content, which is the property website. Images, 3D floor plans and virtual tours, street views, video and high-quality images from RealPage incorporated into the property website and linked directly with Google all enhance a property's brand. More importantly, our analysis of lead quality and lead quantity highlight a critical point. The property websites convert leads to leases over 2 times the rate of an ILS lead source, and then our clients are experiencing significant increases in high-quality leads generated directly from the Google search window and by exploiting social media. In our view, there is a tremendous opportunity to invest marketing dollars towards more cost-effective, more personalized, higher-converting, direct client engagement channels to supplement the indirect lead generations provided by the ILSs. With that as context, yesterday we entered into an agreement to acquire LeaseLabs, a premier provider of top-of-funnel direct marketing solutions. We intend to combine what LeaseLabs refers to as full-stack marketing with the RealPage marketing platform to create a cost effective suite that we're calling the Go Direct Marketing Suite. Now this is both a product extension and a market share extension acquisition for RealPage. LeaseLabs excels and we expect they will continue to excel at creative design, marketing strategy, marketing analytics and direct marketing execution through search engines and social media channels. RealPage excels at content management services, high-performance website and micro-site landing pages optimized for their SEO relevance and intelligent lead management for full 360 degree rental relationship management of prospects to residents. RealPage, combined with LeaseLabs is expected to create a powerful marketing platform that allows owners and operators to go direct with their advertising and marketing spend, thereby increasing the number of qualified leads, accentuating their brand instead of the ILSs and reducing overall marketing cost. LeaseLabs currently serves 800,000 units that are using their platform, of which approximately 200,000 of these units are unique to RealPage. We expect the new Go Direct suite will be affordable for all properties and become the first true just-in-time lead machine tied directly into the demand forecasting capabilities of our revenue management platform so that high-quality direct leads can be generated at precisely the right time to match imbalances in supply and demand. We believe Go Direct will make demand optimization a reality so that owners and operators can dynamically tune their marketing spend based on number of leases that they need at any point in time. At RealWorld, we unveiled important innovations in other areas of our platform. For example, we announced results of the first wave of clients who had migrated to Unity and offered to convert any client who attended the user conference then and there; it was that easy. Unity enables clients to log in once to access and utilize the entire RealPage platform as well as manage and provision users in one place. Unity delivers a consistent user experience across all applications, including those from our acquired companies and allows us to seamlessly share data across our entire platforms so the client data is only entered once. During RealWorld, we also announced RealPage Explore, enabling users to access rent and occupancy data, updated continuously for millions of investment grade units in the U.S. at no charge. As the source for apartment market data, we believe anyone looking for apartment metrics should be able to access reliable data anywhere at any time with the confidence the information was sourced from RealPage's industry-leading data set. Now everyone will have a powerful tool that they can incorporate into their operations to explore potential markets or compare their properties to competition. Just go to our website www.realpage.com, and click on the map in the lower right-hand corner of the screen to see RealPage Explore. It's that simple. This is an important step for us as it allows us to monetize our data advantage by providing a clear path for richer, more granular pay to play and self-provision solutions including Underwriting Analytics. Finally, following the successful inaugural RealWorld - or KigoWorld Conference in Europe earlier this year, we announced the launch of Kigo Hospitality, which is expected to provide apartment owners and operators with a comprehensive technology platform to effectively manage short-term rentals. We support apartment owners with only a few units available for short-term rentals with the hospitality infrastructure needed to support a great guest experience and the platform and services to efficiently handle guest acquisitions, screening, insurance, rental agreements, sales and hospitality taxes, regulations, cleaning service, access control and 24-hour-a-day contact center services. We believe Kigo Hospitality provides a cost effective way for apartment owners with a limited number of short-term rental units to capitalize on the significant shift in consumer behavior away from hotel accommodations to short-term apartment rentals and capture extremely valuable incremental returns on their property investments. According to Phocuswright , the U.S. short-term rental market, which is estimated to reach $40 billion by 2019, is currently facing supply shortage challenges resulting from rising traveler demand. While apartment owners and managers across the company - the country have vacant apartments that they can easily be used to meet the pent-up and growing demand for travelers, they're faced with unique challenges that make entering the short-term rental market too risky. Now thanks to the launch of Kigo Hospitality, we're enabling apartment owners and operators to easily create and manage short-term rentals with hotel-like quality and consistency while adding a new revenue stream. In addition, Kigo Hospitality allows owners to push inventory out of the long-term rental pool, which then constrains supply. A revenue management platform can then monetize this constrained supply for owners in the form of higher rents. Moving on to macroeconomic trends. According to our data occupancy for the second quarter was 95.4%, in line with the second quarter of last year. Annual rent growth registered 2.5%, the lowest level of increase over the last 31 quarters. While the overall market remains strong with just under 400,000 market-rate apartments under construction, we are starting to see more and more pockets of softness, which indirectly helps RealPage because many of our products and services are more valuable in periods of soft demand. Before handing the call over to Bryan, I'd like to talk about continued productivity improvements within our sales force. We've achieved four consecutive quarters of strong sales booking growth and our backlog awaiting implementation is the largest in our history. In addition, over this time period, we've increased the number of sales reps significantly while maintaining 10% plus sales force productivity improvements. We expect this performance will result in nearly $75 million of organic revenue growth in 2018, implying 13% organic revenue growth at the midpoint of our guidance and 14% at the high end. In closing, RealPage is driving strong financial results that are allowing us to look beyond 2020. I'm extremely proud of the whole team here and grateful for the support of our customers, our partners and investors as we continue on our journey together. I'll now hand the call over to Bryan.

[Bryan Hill:]

Thanks, Steve, and good afternoon, everyone. Today, I will review our second quarter financial performance and progress towards achieving our 2020 financial objectives. During the quarter, our strategic focus on financial discipline helped drive impressive financial results. Total non-GAAP revenue grew 33% and adjusted EBITDA grew 45%, representing margin expansion of 210 basis points. In addition, our new sales bookings growth is in line with total revenue growth levels and was broad-based across our four product family groups. During the second quarter, we continue to make progress with respect to our North Star focus, Innovation and simplification. Our past investments have resulted in organic revenue growth improving to nearly 12% during the second quarter compared to the prior year quarter and profit levels continued to benefit from our focused financial discipline. On May 30, 2018, we successfully completed an offering of common stock to strengthen our capital structure. RealPage sold just over 8 million shares of its common stock, representing $459 million of gross proceeds. We utilized the proceeds to pay the cash component of the ClickPay acquisition, to pay down our revolving line of credit and contribute to the $272 million increase in our cash balance. We now have $350 million available under our credit agreement and cash on the balance sheet of $373 million. I'm confident our current capital position will support our growth requirements and the mix will continue to deliver a cost effective structure, enabling the deployment of capital that drives superior returns for our shareholders. From a capital deployment perspective, as we disclosed last quarter, we acquired ClickPay during the second quarter for $218.5 million. ClickPay significantly expands our footprint for payments in the multifamily rental, single-family rental and owner-occupied segments of housing. We are excited about ClickPay's property management agnostic approach to payments and the acquisition is expected to contribute revenue of $23 million during 2018, representing growth of 45% for the full year 2018. We also announced today that we reached an agreement to acquire LeaseLabs for approximately $103 million, with additional purchase proceeds linked to an earnout structure. As Steve mentioned, we believe LeaseLabs combined with RealPage, can create a unique Go Direct Marketing Suite, enabling owners to become more efficient and cost effective with their marketing spend. While completion of that acquisition remains subject to customary conditions, including regulatory review, LeaseLabs is expected to contribute revenue of approximately $5 million during 2018, which represents three months of operating results. LeaseLabs revenue has been growing at a 25% or slightly better pace. Related to acquisitions, we continue to rely strong results from our 2017 acquisition cohort. On a run rate basis, exiting the second quarter, the cohort's adjusted EBITDA purchase price valuation was just under 11 times. I'm quite proud of our team's dedication and the progress we've made to drive synergies in order to meet our objective of 10 times by the end of 2018. Now for quarterly operational performance. Non-GAAP on-demand revenue grew 33% compared to the second quarter last year. Units grew 35% compared to the prior year quarter, primarily due to new units acquired through the ClickPay acquisition. ClickPay added 2 million HOA units and 300,000 multifamily units that are now new to RealPage. Organic unit growth in the quarter was above recent churns growing 5% compared to the second quarter of last year. Revenue per unit was over $60 for our rental client ACV, nearly $10 for our HOA client ACV and just under $54 for our total company ACV. While the ClickPay HOA units were dilutive to overall RPU, the cross-sell opportunity is very compelling, as this market possesses a $60 RPU potential. Our total company annual client value is nearly $838 million, representing 29% total growth. The primary drivers of total on-demand revenue performance were continued consistent growth from Property Management of 12%, continued strong growth from Resident Services of 32%, significant growth from Asset Optimization of 61%, while Leasing and Marketing grew 46% compared to the second quarter last year. Property Management growth was driven by strong performance in our spend management, OneSite, Property Management and Financial Suite solutions combined by a slight benefit from the acquisition of On-Site Manager. Resident Services benefited from strong growth from our payments and resident Utility Management solutions; portions of the On-Site platform that are more resident-focused; and the ClickPay acquisition, which contributed $6 million of revenue during the quarter. 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 organic lead-generation solutions achieved solid growth as well. We continue to experience some headwind from our contact center solutions, albeit lower than recent quarters. I would like to highlight, our Leasing and Marketing product family group did achieve modest organic growth during the quarter of 2%, and we look forward to accelerating that growth with LeaseLabs and our Go Direct Marketing Suite. Asset Optimization continues to show evidence of market acceptance for data-driven solutions. As a reminder, the acquisition of LRO is included in this family product group. Organic growth continues to be encouraging, led by growth from our revenue management, BI and data analytic solutions. Our profitability performance continues to track towards $300 million in adjusted EBITDA. We achieved $57.1 million of adjusted EBITDA, a margin of 26.4%, reflecting growth of 45%, and 210 basis points of margin expansion. Gross margin was approximately 64%, excluding depreciation, amortization and stock-based compensation, and was accretive to aggregate margin expansion by over 90 basis points. Gross margin expansion was driven primarily by efficiencies achieved in our multifamily operations as a result of clients adopting more margin-rich solutions, synergies achieved related to our 2017 acquisitions and more efficiently leveraging our fixed costs such as our IT operations. The leverage was partially offset by lower incremental margin from the ClickPay acquisition. Total operating expense on a non-GAAP basis for the quarter was just under 40% of revenue, the lowest in our history. As we look at the components, product development expense as a percent of revenue was 13%, nearly 140 basis points higher, primarily related to investments in innovation and incremental acquisition costs. It's important to note, we were able to increase product development funding, which represents investments in our future, and still delivered 210 basis points of adjusted EBITDA margin expansion across the business. Sales and marketing expense as a percent of revenue was under 17%, declining over 200 basis points compared to the prior year. The leverage was a result of the scale we built in our sales and our marketing engine and lower sales commission resulting from the adoption of ASC 606. Including acquisitions, we added 55 team members compared to the prior year period, while continuing to drive higher sales force productivity per direct rep by 10%. We expect to continue to modestly invest in the sales team throughout 2018. General and administrative expense as a percent of revenue was 10%, down over 80 basis points compared to the prior year period. Leverage was driven by scale across our administrative functions, partially offset by incremental costs from acquisitions. Now moving to cash flow performance. During the quarter and year-to-date, we have generated $43 million and $97 million of operating cash flow, respectively. This excludes a $5 million year-to-date 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 year-to-date were slightly over $22 million, representing 5.4% of revenue. We expect free cash flow growth of approximately 60% for the full year 2018. We exited the quarter with approximately $658 million in debt adjusted for the issued value of our convertible notes. This represents debt to pro forma EBITDA leverage of 3 times. As we have previously stated, we are comfortable carrying leverage of 3 to 3.5 times. We are confident our strong cash flow profile, our strong cash position and our ability to grow adjusted EBITDA enables us to reduce leverage very quickly. Now moving to guidance, which includes the ClickPay acquisition with just over eight months of contribution and the LeaseLabs acquisition with an expected three months of contribution starting October 1. For the third quarter of 2018, we expect non-GAAP revenue in the range of $220 million to $222 million. Adjusted EBITDA is expected to be $56.5 million to $58 million and non-GAAP diluted earnings per share is expected to be $0.34 to $0.36 per share, reflecting increased number of weighted average shares outstanding resulting from our follow-on equity offering. For the full year 2018, we expect non-GAAP revenue of $867 million to $873 million. Adjusted EBITDA is expected to be $226 million to $230 million. And finally, non-GAAP diluted earnings per share is expected to be $1.44 to $1.48. This concludes the financial results commentary. I'll now turn the call back to Steve to provide a few closing remarks.

[Stephen Winn:]

This has been an exceptionally strong quarter for RealPage, and I just want to highlight a couple of takeaways for the quarter. Bookings momentum, backlog levels and exceptionally strong unit growth give us confidence that we will see organic revenue growth acceleration in the back half of 2018. Our accelerating organic revenue growth and 2018 acquisitions lead us to believe we will surpass $1 billion of revenue in 2019, one year earlier than projected. And we also expect to exceed our $300 million adjusted EBITDA goal during 2020. Our scalability continues to be impressive. We expect an increase of approximately 200 basis points of adjusted EBITDA margin expansion in 2018, while continuing to invest in our business and absorbing margin dilution from 2018 acquisitions and integration costs from our 2017 acquisitions. Our cash flow profile continues to be strong and we expect 40% operating cash flow growth for the full year. We also expect to meet our CapEx objective of approximately 5% of revenue, resulting in 60% free cash flow growth in 2018. Before going, while excellent operating metrics only tell part of our story, strategically we believe we have a winning strategy for the long-term on many fronts. ClickPay, LRO and On-Site solidify a Property Management system agnostic front end. LeaseLabs, coupled with our Go Direct market investments, are expected to accelerate organic revenue growth for our Leasing and Marketing platform, thereby lifting organic growth for the entire company. We continue to leverage our data assets in creative ways to monetize new sources of revenue such as Underwriting Analytics. Kigo Hospitality is capitalizing on a material shift in consumer-buying behavior from hotels to short-term private accommodations. And finally, Unity is enabling us to achieve much better scale because it simplifies our business processes, thereby enabling us to drive margin expansion in the future. With that, let's open the call for questions.

[Operator:]

[Operator Instructions] Our first question today will come from Patrick Walravens with JMP Securities.

[Patrick Walravens:]

Great, thank you and congratulations. Hey, Steve. As we look out past - because you're going to get your $1 billion and you're going to get your $300 million, so as we look out past 2020, how should we think about the next milestones or maybe the pace of operating marked by adjusted EBITDA expansion?

[Stephen Winn:]

We will provide some direction in February. But I think the organic growth story of 10% to 12% is certainly a very obtainable path past 2020 and, in fact, could be over that. And Unity and many other scale-related efficiencies that we're getting will enable us to continue to expand gross - or EBITDA margins. So I think this train is going to continue to run about the same speed, maybe a little bit faster than it has been.

[Bryan Hill:]

Yes. Pat, when we've originally provided the 2020 guide, what it took to achieve that was 150 to 200 basis points of margin expansion on the adjusted EBITDA line and total growth of around 15%. And as we look at the acquisition horizon, the investments that we've made, well, we've been able to continue to expand adjusted EBITDA margin. At this point, we don't see that target operating model changing even though we've been able to achieve the 2020 guide slightly sooner than what we were expecting.

[Patrick Walravens:]

Great, thank you.

[Operator:]

And our next question comes from Sterling Auty with JPMorgan. Please go ahead.

[Sterling Auty:]

Sir, can you give us a little bit more color on the LeaseLabs acquisition? Maybe specifically, what is the contract structure like? How does that compare to what you already have in that general space? And how many employees would be coming over with the acquisition?

[Stephen Winn:]

The contract for pricing arrangements that LeaseLabs uses are very similar to what we use. It's a recurring subscription revenue model. They do have multiple tiers of pricing based on the amount of demand that you want to generate direct from particularly the social channels. But it's very compatible with what we do. They have a little, what's the headcount?

[Bryan Hill:]

A little over 100.

[Stephen Winn:]

Yes. A little over 100 professionals located mostly in San Diego, California.

[Sterling Auty:]

Got it. And one follow-up on ClickPay, I know it's early days still, but what's been the reception from kind of the discussions with your existing customer base on the potential uptake and cross-sell of it?

[Stephen Winn:]

I think the end customers are very enthusiastic about ClickPay because it adds two capabilities to our payment platform we didn't have before. One, we can now eliminate check scanners on the properties because we link directly to the online banking system which ClickPay brought us, and this is a pretty big deal for us. They also have direct banking relationships where banks actually can pay for the service in many instances, which is unique. And they also got us into some Yardi accounts where their integration is substantially better than our integration. So we've opened up, with the combination of LRO, On-Site and ClickPay, a front-end suite of applications that are very tightly coupled with Yardi and MRI. So we're enthusiastic about being able to get traction in that area.

[Sterling Auty:]

Got it, thank you.

[Operator:]

And our next question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

[Matthew Hedberg:]

Hi, guys. Thanks for taking my question. I also wanted to ask about ClickPay. Since you guys announced the deal, we've had some time to do some additional due diligence. Really like the asset and the opportunity it brings you. But I guess, Steve, my question is could you talk about some of the predictability in the ClickPay model, maybe how it's rolled out on a building-by-building basis? And how has adoption sort of they build within each building? And then maybe as a follow-on, thinking out a little longer, given the success there, I mean, could organic growth of that asset accelerate beyond kind of what you're seeing now?

[Stephen Winn:]

The penetration that ClickPay enjoys in multifamily is similar to ours. When you adopt a payment, electronic payment platform, you typically get all of the units. So we'll run 107% transactions compared to the number of units at a property, and ClickPay was experiencing the same thing. In the HOA market, it's a little different there. They have to - the big fee managers of HOAs have to roll this product out HOA by HOA. So it's a longer deployment cycle for HOA. I really like this asset because it differentiates our payment solution even more than it was differentiated before by eliminating check scanners at the site. This is the first solution in our industry where you can effectively eliminate all handling of payments at the site because every form of payment is supported. So we think this is an important differentiator for RealPage and should allow us to continue to grow payments at a quite bit faster pace than the rest of the company is growing.

[Matthew Hedberg:]

That's great. If I could ask one more, I always appreciate your views on the macro environment. You talked about rental apartment growth at an eight year low. Last cycle, I think you said property managers invested a little too late in the cycle. Are you seeing anything different this cycle with better tools, revenue management solutions? So just maybe sort of compare where we're at versus sort of prior trough to apartment growth rates.

[Stephen Winn:]

I think the industry is clearly more informed today than they were in the 2008 downturn. And so we're seeing a deceleration of new construction projects being launched. I think the industry is recognizing that in some pockets of the country, there is an oversupply. But you have to couple that with there's still strong demand for new construction. So I don't see this industry really impacted in a major way. I think we're going to continue to see revenue growth. Multifamily is going to continue to be a great place to invest for the long-term. And as long as you're selective about where you're building, you should do fine.

[Bryan Hill:]

And Matt, what we're seeing from a recent trend perspective is acceleration in bookings in our Asset Optimization product family group. Bookings are up for the first half of the year close to 60% over the prior year. So that gives us a couple of understanding - understandings that; one, the market is just more readily accepting data-driven solutions; and two, the point that you made, the view was the end market was making investments late in the cycle and maybe not soon enough to carry them through the cycle. And maybe what we're seeing is an indicator of that now through some of our increased bookings acceleration in the AO product family. And now we've also rolled out new tools that will further help the end market identify better and more attractive areas to invest through our RealPage Explore product.

[Matthew Hedberg:]

Super helpful. Thanks a lot, guys well done.

[Operator:]

And our next question comes from John Campbell with Stephens. Please go ahead.

[John Campbell:]

Hey, guys. Congrats on the LeaseLabs deal. With Kigo, it seems like there's a big opportunity to grow in the present on the consumer side with the marketplace. Is there an opportunity, I guess, to leverage the LeaseLabs offering internally to maybe help accelerate that maturation?

[Stephen Winn:]

I think LeaseLabs will be involved in Kigo marketplace in helping set marketing strategy, but the real focus of the LeaseLabs acquisition is to expand multifamily Leasing and Marketing products.

[John Campbell:]

Okay. And then I want to touch back on Unity. You guys have essentially, I guess, tied everything together on the back end. You've got the single sign on. You've got the platform with all the products. The question is, I mean, does this eventually open the door for like a big pivot on the pricing side? You guys have, I guess, always done the kind of à la carte type pricing model. Could you ever move to like an enterprise level offering like a Yardi?

[Stephen Winn:]

We are moving to suite pricing, where we bundle multiple product solutions together as a suite, and this gives us some competitive advantage over single solution providers. I don't know that Unity in and of itself is going to drive an opportunity to increase price. I think price is increased based on the delivery of greater value to our customers and also where our primary focus is not to create an artificial price that our competitors can slip under. We'd much rather sell additional products into the same installed base. So where we might be able to get a price increase, we'll frequently trade that for cross-selling more of our platform into that installed base.

[John Campbell:]

Okay, thanks for the color. Thanks, guys.

[Operator:]

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

[Stephen Sheldon:]

Good evening. So it sounds like you'll be more directly going up against the ILS providers with the new marketing suite. So I guess a few questions. How quickly do you think you'll be able to get the Go Direct Marketing Suite assembled after the LeaseLabs acquisition closes? And what's your view of both potential customer appetite for the suite? And how quickly you may be able to gain, I guess, market share from the ILS providers?

[Stephen Winn:]

I don't think we view this as a win-lose with the ILSs. There's clearly a place for indirect lead generation through an ILS. We just believe, as evidenced by the data that we are seeing, that a higher percentage of overall leads can be sourced through direct channels, but I don't think that means that we're competing with the ILSs head on. There's still a need for ILSs. We have seen - the other reason direct marketing channels are so powerful is because we convert so much better than an ILS. A lead coming into a website or into our contact center will convert 2 to 3 times higher than a lead that comes directly from an Internet listing service that is essentially marketing the lead to multiple properties. Owners are very attuned to this desire to shift direct. Most of the larger REITs have already moved the bulk of their lead generation to direct channels, and I think the rest of the market is coming along at a slower pace, but it's moving. It's just a more efficient, less costly way to generate demand. We're also able to modulate demand using the Go Direct platform so that in periods of time when you need more leads, we can tune it up and charge more. And in periods of time when you don't need as many leads, we can tune it down and that is really not the way an ILS works. They typically charge a flat monthly subscription fee or a per-lead fee. So Go Direct is essentially done. It is solely a matter of plugging the pieces together, adopting the Unity platform on the LeaseLabs platform, which will not take long, and we should be in the market with Go Direct here in early fourth quarter.

[Stephen Sheldon:]

Got it, very helpful. And then on Underwriting Analytics, can you maybe talk about how initial usage there has been? Did that contribute any revenue in the quarter? And then maybe what has the conversion been like from free - with people looking at the data for free and then the upsell to the fully priced reports?

[Stephen Winn:]

Well, I don't think there's going to be any cannibalization of our data analytics platform. Underwriting Analytics is just one part of a broader platform that we market. Because we don't provide enough granularity into submarkets or the details of occupancy by floor plan type and that sort of thing, so what we're doing is providing a platform that's free. But then when you get into it, you get intrigued and say, Well, I'd really like to see more. And that's where you click to launch initially Underwriting Analytics, but over time, you will see additional products that launch off of RealPage Explore. It's way early for us to see any meaningful revenue contribution from Underwriting Analytics. We're excited about the platform, and I think it's directionally an extremely important platform for RealPage, but this is a longer-term opportunity for us.

[Stephen Sheldon:]

Thank you.

[Operator:]

Your next question comes from Monika Garg with KeyBanc Capital. Please go ahead. Monika, your line is live, you may proceed with your question.

[Jason Celino:]

Hi, this is Jason on for Monika. My first question - actually your secondary raise, earlier last quarter, and with the announcement of the acquisition today, I mean how are you thinking about your usage of cash and your M&A strategy going forward?

[Bryan Hill:]

So you mean our capital allocation strategy has been consistent. We used the proceeds from the follow-on to pay off - pay down our revolving credit lines. So the remaining debt that we have in place is termed up, which we'll continue to keep in place. We also use proceeds from the follow-on to pay the cash component of ClickPay. So as we exit Q2, we have between our revolver as well as cash on balance sheet north of $700 million of capital that we can deploy for future acquisitions. The acquisition pipeline continues to be strong and robust. However, we have acquired now two companies in 2018 and we still have our 2017 acquisitions that we're integrating. So we will opportunistically evaluate deals as they come to market. I mean,, in this vertical RealPage is the natural consolidator and we see all the transactions, and we have an opportunity to make a move on the assets that we feel are the most valuable to us and our strategy to provide the most - or the best return for our shareholders, but that's just a part of the story. In this quarter, as we saw organic revenue growth accelerate to 12% and our guide implies at the midpoint, 13% to 14% at the high end, in the back half of the year, we're very focused on continuing to drive value to organic revenue growth.

[Jason Celino:]

Okay, thank you. And you mentioned your sales productivity gains into your sales force and also the expected hiring you're expected to do. Can you kind of go into detail on how you're driving some of these efficiency gains?

[Bryan Hill:]

So a lot of the efficiency gains coming to the sales force are the strategy of driving more suite sales and a richer mix of RPU on the initial sale for new clients. As we've mentioned on our beginning-of-the-year earnings call, we've moved to a solution rep approach to augment our general sales force where we have specialty sales groups within our financial suite, our AO suite as well as our own products, to give you a few examples. Those additional very focused sales reps are contributing to the overall productivity of the general sales force. And then we've also launched within our marketing group new product marketing initiatives that we feel we're in the early innings of seeing some success but could drive greater productivity as we exit 2018 or on into 2019.

[Jason Celino:]

Great, thanks a lot.

[Operator:]

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

[Mark Schappel:]

Hi, thank you for taking my question. Steve, going back to the On-Site acquisition. When On-Site was acquired, you thought you had a pretty good opportunity to target your front-end marketing suite into some of the Yardi and MRI customers. I was just wondering if you'd give us an update on some success you were seeing on that front.

[Stephen Winn:]

Well, a lot of the growth that you're seeing is selling front-end suites into those platforms. We needed to put together LRO On-Site and ClickPay in order to really address the full front end of suite type integrated with - in an agnostic PMS way. And so it's a little early given that we only acquired ClickPay a few months ago.

[Bryan Hill:]

But to give some indication, for the first half of 2018, so our year-to-date bookings number, between 6% and 7% of those bookings were related to pull-through of sales on some of the new units that have come with those acquisitions. So that's part of what we were trying to realize is expanding the RPU of the new units that come to RealPage through those acquisitions.

[Stephen Winn:]

You see the success of it in just the new units. I mean, we've brought on close to 400,000 units in just the first half of this year. And in a typical year, we target 400,000 to 500,000 units for the whole year. So we're seeing good solid bookings driven by incremental units and cross-selling of the entire suite. So it's not one thing. It's a combination of many factors that are driving our optimism about accelerating organic growth.

[Mark Schappel:]

Thank you. And then second question, if I recall correctly, last year - early last year, you launched your solution for commercial real estate, and I was just wondering if you can give us an update on that initiative. Granted it's early days, but give us your early thoughts.

[Stephen Winn:]

Well, our target for our commercial product is not enterprise-level commercial operators or owners. We're going after the middle market or multifamily clients that have mixed-use assets that include some retail or commercial elements. And we're pleased with the progress we're making there, but I don't view this as a huge opportunity just because we're staying away from the upper end where Yardi and MRI have got a pretty good stranglehold on that segment of the market. I don't think there's a lot of opportunity for us there.

[Bryan Hill:]

And when we started the rollout of our new product, we took a - which is new to RealPage, more of a VAR approach, we had limited success with that. So we moved more back to the direct sales force approach, and we are starting to see some recent success outside of Q2. So in the month of July, we added close to 10 new logos on that product. While that's still slow, that gives us some encouragement that the direct sales model can work. Those new logos, those came from the competition that's fairly well entrenched in the space that Steve just mentioned.

[Mark Schappel:]

Thank you.

[Operator:]

And this will conclude our question-and-answer session as well as today's conference. We thank you for attending today's presentation, and you may now disconnect your lines.