RealPage Inc
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good day and welcome to the RealPage First Quarter 2017 Financial Results and Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that 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, Daniel. Good afternoon, and welcome to the RealPage financial results conference call for the first quarter ended March 31, 2017. 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 4, 2017, and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. As detailed, 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, 2017 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'll hand the call over to Steve.

[Steve Winn:]

Thanks, Rhett. Good afternoon everyone and thank you joining us today for our first quarter conference call. 2017 is a big year for RealPage and I'd like to spend a few minutes explaining why I’m so excited about the quarter and our future. As you can see from our earnings release, the first quarter exhibited solid revenue growth, strong margin expansion and significant cash flow generation. Impressive results across the board, Bryan will speak to some of the details of the quarter and our outlook for the remainder of this year. Before we do that, I’d like to focus on where we’re headed and how we are progressing this year. RealPage helps managers of resident of rental housing properties improve operational performance through increased revenue, reduced expenses and less risk. The addressable market in the U.S. for solutions that improve operational performance is estimated to be over $11 billion. We recently introduced products that help owners improve their transactional yield when assets are bought and sold. We believe over a $150 billion of apartment assets are bought and sold each year in an industry worth over $3 trillion. We believe the macroeconomic trends in multifamily suggests a supply and demand are slowly coming back into equilibrium. According to our data from Axiometrics and MPF Research, occupancy for the first quarter was 94.5%, down from 95.1% last year. Annual rent growth registered 3.7%. Pricing momentum remained strongest in the middle market B class properties. Results are a little more hit and miss, moving up the spectrum in product quality. Top-tier projects in neighborhoods with the most construction are struggling to push rents at all in many cases. We believe data is a key resource that differentiates RealPage from our competitors. Clients tell us that our business intelligence and benchmarking solutions that leverage data give them a unique competitive advantage. For example, this quarter a large bulge bracket investment bank recently led an extensive due diligence process across multiple software partners tasks with choosing the best option for their intensive data analytic needs within the firms asset management and acquisition teams. The RealPage choice was clear. They needed a scalable ERP agnostic platform that could seemingly list aggregate data from multiple third-party property management systems across all of their operators into one solution. They also record a low touch integration progress, real-time reporting and an external benchmarking tool for on-demand market level data. The investment banks felt that RealPage’s real-time external benchmarking tool empowered their team to proactively address least market trends rather than reactively making changes based on outdated inaccurate survey data. The ability to analyze granular real-time rent roll data and lease over lease trade out performance was an “ah-ah” moment for their team. This investment bank is a great example of a client who was using RealPage’s platform to optimize yields on both the operational and transactional side of their real-estate portfolio. Lenders are also seeing value in our data analytics solutions because they help predict areas of the country or specific asset portfolios that have underwriting risk. We are pleased that Freddie Mac is now using our data analytics products for this purpose. As you know, support for our clients doesn’t stop with just helping them gain actionable insights through our data analytics solutions. We are also improving operational efficiency with our comprehensive suite that leverages our repository of resident and market data. This year, we’re taking several steps to drive client adoption of a broader set of our solutions through bundled suites. For example, Houston-based Career Management owns 30 properties with more than 8500 units and employees before RealPage suite including business intelligence, performance analytic, benchmarking, leasing, accounting, payments, invoicing, resident management facilities, purchasing websites, utility management contact center and I probably left a few out. Career appreciates that a single vendor solution enables a smoother integration and data sharing between functions and they preferred to work with one company to solve challenges rather than having to interact with several vendors. Career is growing fast and the scalability and the dependability of our platform was a critical factor in their decision to select RealPage. RealPage’s robust suite has empowered Career to cut cost in labor and boost occupancy, while generating more and better qualified prospects at the lowest possible cost. They love our paperless online application and screening solutions because it’s more convenient for applicants and a big timesaver for their onsite staff who have more time for customer service oriented task. As a former investment banker, the CEO of Career wants the ability to have deep visibility into his portfolio. He is leveraging our data analytics to make profitable decisions and improve his operational yield. He uses RealPage to share financials, look at market trends and competitor activity and create custom reports that offer real insight into problems and opportunities. He believe the winners in multifamily will be those who effectively leverage technology and particularly RealPage data and technology to reduce costs and boost income and occupancy. We’re focused on targeting multiproduct suite sales to bring this benefit to the market particularly with new clients. We have shifted our go-to-market approach this year in several ways to attract more system sales. First, we segmented the sales team by market vertical. This allows our sales team to focus on the customers that they serve and understand their business needs in more detail. Secondly, we built go-to-market plans with our products and marketing teams to support each of the vertical segments and their key needs. We benefit from pricing strategies aimed at incentivizing clients to adopt multiple solutions as a direct result of the unmatched breath of our platform. Finally, when a client is new to RealPage, we now use client’s specific dedicated teams with expertise implementing solutions across multiple product families to ensure their expectations and ours are aligned at the point-of-sale and how the deployment will proceed. We are seeing momentum in bringing the level of attention and focus to the needs of new logo clients and we will continue to refine and improve our approach during 2017. As we look forward, we’re committed to advancing our platform and suite with an innovation strategy that will employ both acquisitions and organic expansion. The acquisition of Axiometrics coupled with the RealPage massive repository of lease transaction data gives us data scope and scale along with an incredible data science team to extract powerful and more importantly actionable intelligence. In further extension of these capabilities, we announced the acquisition of lease rent options or LRO and expect to close this transaction during 2017 as soon as it completes review by Federal regulators. Bryan will talk more about this in his remarks. During the quarter, we’ve been actively working to integrate Axiometrics. Specifically, we’ve already begun executing our plan around facilities migration, organizational structure and go forward data acquisition strategies. We are also in the process of combining the two extensive datasets to form the source for rental market data and analysis. Our revenue and profit targets for Axiometrics are ahead of plan and we are investing a new functionality that we expect to deliver in 2017. During the quarter, we also completed the integration of NWP with our legacy billing solutions to create the RealPage utility management platform. The NWP acquisition has exceeded our projections for both revenue and profit contributions and we’re extremely pleased with the great job our teams have done to create a single user experience and more powerful reporting capabilities. While retaining an enormous amount of unique billing methods that our diverse clients’ base prefer. We’re excited about this integration of our payment processing platform with RealPage utility management. So that we can electronically pay utility bills and bills related to the repair maintenance and operation of apartments. Acting as payment processing intermediary for spend management in addition direct collection should enable us to monetize the billions of dollars of incremental payments made through our network. We are able to digest acquisitions faster and with less disruption to our clients due to technological advances in our next generation Unity platform which is a new name that you may have heard us refer to as foundation or next RealPage. When Unity is complete, if we unify all applications with one source of data, a single sign-on for authentication, a common contemporary user experience and standardized reporting to dashboards. Bolstered by these recent acquisition successes, we will continue to evaluate new acquisitions consistent with our global strategy, vision and return requirements. In addition, we continue to invest in innovation. This quarter, we announced the commercial property management solution. This is the first software solution aimed directly at the underserved sector of middle-market commercial asset managers and operators. These are the managers who use spreadsheets and antiquated system because they cannot bear the high expense and implementation times of software serving top-tier property managers. According to ERP advisors, an experienced consulting and value-added reseller for RealPage from New York putting the latest scalable technology in the hands of small to medium-size operators including a professional reporting engine unique to the industry allows them to work in an enterprise fashion. This RealPage platform is a market game changer. When you combine the RealPage commercial property management solutions, capability price point scalability and speed of implementation you’ve got a winner. We also recently launched our portfolio asset management solutions and are achieving solid revenue traction. PCCP a real-estate investment firm recently selected the [pam] [ph] solution to provide greater investment insight into global investment and portfolio performance as well as help achieve greater visibility across 32 assets consisting of multifamily and commercial properties. PCCP was looking for a platform that would enable easy aggression of financial and operational information from their third-party partners. RealPage will enable PCCP to achieve greater visibility into property performance and to manage financials budgets and forecast, deals, loans and documents in a wide variety of operating statistics, all while greatly reducing the cycle time associated with producing and publishing investor reporting. These are tangible examples of how we’re identifying areas within rental real-estate which we can leverage our data to make a material impact. Over the coming quarters, you will continue to see innovative solutions directed to make our clients more successful operationally and to optimize the deployment and harvesting of capital. In 2016, we set a goal to grow revenue by 15% including acquisitions and expand adjusted EBITDA margins by 200 basis points per year. We are clearly well on our way to achieving our long-term goals. We exceeded this growth rate and profitability improvement objective in 2016 by a wide margin and we’re on track with our objectives for 2017. In summary, our strong first quarter results reflect our success and executing our strategic mission to optimize real estate asset values. Our data rich platform, our integrated comprehensive suite, our innovation and acquired technology and our large market opportunity all support our long-term goal of reaching $1 billion in annual revenue and $300 million in adjusted EBITDA by 2020. I’d like to thank our team at RealPage, our clients, partners and shareholders for your tremendous support. With that, I’ll turn the call over to Bryan.

[Bryan Hill:]

Thanks, Steve and good afternoon, everyone. The strong Q1 financial results reflect another step forward in our mission to optimize real-estate asset values. Our first quarter performance reflects our strong execution, our unique platform and financial model, the success of our acquisition initiatives and our focus on investing for the future. We take a long-term view of our business balancing investment in RealPage’s future, while at the same time meeting our margin objectives with a disciplined approach to drive efficiency and productivity in the business. In 2017, we plan to execute against the annual performance required to achieve our 2020 financial goals while continuing to improve execution and innovate for the future. We are fortunate to generate sufficient profitability growth to expand margins while at the same time increase spending on innovation. Our investments are intended to position RealPage to drive higher organic revenue, accelerate acquisition integration and reduce the cost and time to implement products. Many of these initiatives are expected to help achieve our 2020 objectives that are also positioning RealPage with a more efficient operating platform to achieve revenue growth and margin expansion beyond 2020. Major areas of product and infrastructure-related investment include our next generation Unity platform as Steve described as well as investments in leasing and marketing products that are intended to capitalize on industry macroeconomic trends. As a part of our Unity platform, we intend to introduce our next generation unified communication platform later in the year that should help improve the competiveness of our contact center. Other areas of product investment include expansion of our data analytics suite, asset optimization capabilities in international expansion into Europe. We are also investing in the next generation resident portal and expanded electronic payment capabilities for utility and other vendor payments. Consistent with our model, we will complement our organic investments to help enhance our platform and when possible strengthen or expand our market presence. Steve touched upon our M&A program and I’d like to spend time discussing the details. Our three most recent acquisitions align with our long-term financial and strategic goals. It has now been one year since our acquisition of NWP, which expands our presence in utility billing and we have made tremendous progress in driving synergy. The acquisition of Axiometrics in the proposed acquisition of LRO enhances our data analytics and asset optimization solutions, improves our ability to enable clients to optimize operational and transaction yields and both present unique cross-sell opportunities. Axiometrics integration is already underway and I’ll provide a brief update on the LRO transaction momentarily, however, we expect both acquisitions to be accretive to growth and margin in 2017. We are pleased with our acquisition track record and we believe we are uniquely positioned to leverage carefully selected assets and building our business. Our 20% plus free cash flow return on invested capital underscores our success with acquisitions and our capital allocation strategy in general. Our team continues to focus on efficiency to drive operating margins to new historically high levels. For example, we are improving sales execution and productivity. In the first quarter, our sales team increased bookings productivity 15%. In addition, we are experiencing a higher frequency of multiproduct or suite sales. First quarter results reflect a couple of key takeaways that I’d like to highlight. First, on-demand revenue grew 19%. The subscription component represented 91% of on-demand revenue and grew 22%, units grew 4% compared to the prior year quarter and exclude units related to our former senior living referral services. RPU was nearly $54 and grew 12%, ACV; our proxy for bookings was $596 million representing 13% growth. The main drivers of this performance were strong product family revenue growth from property management of 11%, resident services growth of 35% and asset optimization growth of 39%. Property management growth continues to be driven by our spend management and one-side solutions. Resident services has been a fitting from the acquisition of NWP and continued strong payments and renters insurance revenue traction. Asset optimization stands out as it accelerated sequentially and is becoming a significant source of organic revenue. Axiometrics which is a part of asset optimization achieved revenue growth above our expectations and is off to a solid start for the year. Our yield management, business intelligence and portfolio asset management solutions all contributed to growth in addition to the acquisition of Axiometrics. Lease management was affected by the Q4 2016 sale of our senior referral services and continues to be impacted by contact center headwind. We are optimistic that changes in the multifamily housing macroeconomic environment combined with our new unified communication platform to be released later this year will help reverse the slight declines we’ve been experiencing in this area as we exit 2017. Second, we continue to improve profitability as we achieved $37.1 million of adjusted EBITDA, a margin of 24.1% reflecting margin expansion at 270 basis points and growth at 35%. Looking at the components that drove the margin expansion and relatively to our long-term goals, gross margin was 64% excluding depreciation, amortization, and stock-based compensation and with slightly accretive to aggregate margin expansion by 20 basis points. Our 2020 goal assumes a moderate amount of gross margin expansion per year depending on revenue mix and a target of approximately 65% to 66%. Total operating expense on a non-GAAP basis for the quarter was at one of the lowest levels in company history at 42% of revenue. Our 2020 goal assumes total operating expenses will represent approximately 35% to 36% of revenue when excluding depreciation, amortization and stock-based compensation. As we look at the components, product development expense as a percent of revenue was 12% down 20 basis points exhibiting leverage despite incremental cost from acquisitions and the infrastructure and product investments that I previously mentioned. Sales and marketing expense was the largest driver of margin expansion for the quarter at 18% of revenue, declining 220 basis points primarily due to leveraging our significant historical sales investments while continuing to invest in our SMB sales segment. General and administrative expense as a percent of revenue was 12%, essentially flat with the prior year quarter are continue to be comfortable in our long-term ability to drop a significant amount of incremental revenue growth to the bottom-line. For example, we achieved a 38% contribution margin on Q1 2017 revenue growth. Next, our capital allocation strategy continues to focus on the most efficient deployment. We deployed and prioritized capital across internal investments, acquisitions and share repurchases based on the most compelling risk adjusted returns for our shareholders. In line with this philosophy, our Board recently authorized the company to purchase up to $50 million of our outstanding shares of common stock over the next 12 months. During the quarter, we generated over $34 million of operating cash flow exhibiting growth at 18% compared to last year’s quarter. Capital expenditures were just under $10 million. Excluding some shifting of headquarter related spend in 2017; we still expect to be at approximately 6% of revenue in 2017 and 5% of revenue in 2018 and beyond as it relates to capital expenditures. Next, I’d like to cover some accounting related matters. In the first quarter, we adopted the accounting standard update improvements to employee share-based payment accounting which addresses among other items, the accounting for income taxes and cash flow presentation for the tax benefit associated with share-based compensation. A key change made by this update is that all excess tax benefits and deficiencies generated from the settlement of stock awards are now recognized as an income tax expense or an income tax benefit in the income statement. Previously, excess tax benefits or deficiencies were recorded as additional paid in capital. Upon adoption, any previously unrecognized excess tax benefits are recorded on the balance sheet. As a result, we recognized $43.8 million at previously unrecognized benefits as an increase to our deferred tax assets with a corresponding increase to beginning retained earnings. Also cash flows related to excess tax benefits are now presented as an operating activity rather than a financing activity. This change in classification is reflected in the statement of cash flows for the first quarter of 2017. However, as we adopted this change in classification prospectively, 2016 was not adjusted. Under the accounting standard update, our GAAP net income and GAAP diluted earnings per share for the three months ended March 31, 2017 increased by $2.7 million and $0.03 per share respectively over what they would have been under the previous accounting rules. Now, I want to provide a quick update relative to ASC 606 revenue from contracts with customers. Our contractual relationships typically grant a right to our clients to either access our solutions or receive a service from us for a one-year annually renewable period. Based on these facts, we are confident our ratable revenue recognition model will stay in place with minor changes to historical revenue recognition where upfront services are performed, some revenue maybe reallocated to such services from our on-demand revenue category and recognized earlier than ratably over the one-year license term. There could also be acceleration in timing of accommodations granted to clients. Based on where we are on the process, our current analyzes leads us to believe these changes will have an immaterial effect on our revenue recognition. Although, ASC 606 will require some backlog disclosures that will be new for RealPage, however, given that our contracts are typically one year in length; annual contract value will continue to be the primary metric for evaluating future revenue potential. Before moving to guidance, I’d like to provide the status for closing our proposed acquisition of LRO and the potential implications for 2017 outlook. The LRO acquisition is subject to standard closing conditions including the completion of the Hart-Scott-Rodino Antitrust Review Process. We are working through that process in close cooperation with federal regulators. We are currently subject to a waiting period which will expire next week and it is possible that we will be able to proceed with closing the transaction after that date. However, it is also possible the regulators will continue to review process beyond next week in which case the timing of a potential closing will remain subject to completion of the review process. In that case, we will continue to work diligently and cooperatively to obtain the required clearance as soon as possible. Now moving to guidance. We are removing LRO from our outlook until we have a certain close date. Our previous guidance which expected in April first close date included the following full year contribution from LRO. Non-GAAP revenue of approximately $30 million, adjusted EBITDA of approximately $8.3 million and non-GAAP EPS of $0.01 per share. Now for the second quarter of 2017, we expect non-GAAP revenue in the range of $159 million to $161 million. Adjusted EBITDA is expected to be $38.3 million to $39.3 million a non-GAAP diluted earnings per share expected to be $0.22 to $0.23 per share. For the full year 2017, we expect non-GAAP revenue of $643 million to $652 million representing a rise of approximately $2.5 million at the midpoint. Adjusted EBITDA is expected to be $156 million to a $160 million representing a rate of approximately $1.3 million at the midpoint. Finally, non-GAAP diluted earnings per share is expected to be $0.88 to $0.92. In conclusion, I’d like to acknowledge our team for delivering another successful quarter. We are making significant strides towards achieving our 2020 financial objective of $1 billion in revenue and 30% adjusted EBITDA margin. Our strong execution focused on profitability and successful M&A program are all key drivers of our outstanding results. This concludes our prepared comments. Operator, I’d like to open the call for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brandon Dobell with William Blair. Please go ahead.

[Brandon Dobell:]

Thanks. Good afternoon guys. Bryan, one for you, you talked about the NWP acquisition and the progress there, give me some sense of [Technical Difficulty] of the acquisition, how you thought about them [Technical Difficulty] that you paid and what we think of [Technical Difficulty] given the growth synergies that are [indiscernible] there?

[Bryan Hill:]

You know, Brandon, I apologize that you are cutting out pretty bad in that question, could you re-ask the question?

[Brandon Dobell:]

Sure, hopefully [Technical Difficulty].

[Bryan Hill:]

Well, you still cut out, but as it relates to our NWP acquisition, I did pick-up on that. As I mentioned in my prepared comments we’ve now crossed over the year anniversary. And what’s exciting about NWP is our ability to integrate the acquisition as quickly as we have. The purchase price evaluation we’ve driven down to about six – below six times EBITDA multiple which we expected, but we achieved much sooner than we felt that we originally would. Secondly, we are still going through the process of integrating the operations and integrating components of the platform, but we did deliver earlier than expected the user experience which is very important as we undertake our acquisitions. We want to ensure that the impact to the client base is very minimal which ultimately results in a greater retention of the client base. So as it relates [indiscernible] we’re extremely excited. Secondly with Axiometrics, while we’ve only owned that asset since February. we’re off to a great start emerging that into other aspects of our asset optimization product family solution. As Steve mentioned some of the early successes have been around the integration of data, acquisition and integration and understanding of how we will move the facilities of those operations. So both of those are well underway.

[Brandon Dobell:]

Okay. Thanks. That helps. Maybe [Technical Difficulty] change in kind of go-to-market strategy focused on market verticals, should we think about that as maybe changing the headcount expectations for the sales force and also want to get a sense of more work to do there and how we’re going to think about how much difference that makes in terms of productivity, contract, value growth et cetera just trying to get a sense of what kind of external markers we may see, or you guys may give us to gauge how successful those changes were?

[Steve Winn:]

So, what we communicated on the call was some of the new strategies that Ashley Glover deployed, she has rejoined the company. One of which is creating some smaller teams around a separate verticals such as our senior market, student markets and affordable markets and we feel that will help o drive more expertise and success to those markets. From a headcount perspective, as we mentioned in prior calls, we’ve performed a lot of the heavy lifting as it relates to more of the corporate side and the enterprise side of multifamily or you will see some investment or we had investment in the quarter was more around the vacation market and more around the SMB side of multifamily and single family as well as we added close to 15 to 18 sales reps as it related to Axiometrics. But, we’ll continue to see margin expansion as it relates to sales and marketing. It’s an area that we’ll opportunistically invest as those opportunities arise, but I wouldn’t -- we weren’t trying to signal a significant shift in that area than what we experienced in Q1.

[Brandon Dobell:]

Okay. Thanks. That’s helpful. And then, final one from me, if you guys think about the business intelligence data, analytics et cetera kind of opportunities. Is there a particular, I don’t know customer type, customer subsets, owner versus manager et cetera where you’re seeing more traction than others, I just want to try and get a sense of where you’ve been successful the earliest and kind of how you make that fit -- or make that work into a broader subset of the customers? Thanks.

[Steve Winn:]

[CDI] [ph] is important particularly the benchmarking capabilities within that platform to both operators and institutional owners of multifamily assets. I would say the primary shift that we’ve seen is institutions are now acquiring BI performance analytics independent of the operator because they want to be able to see the performance across all of their operators and not rely solely on the operator to present their reports. As a result of that, we have created a sales team which is we call the institutional sales team and it is selling directly to the larger GPs, LPs, pension funds and lenders to expose the entire data analytics platform including benchmarking and BI.

[Brandon Dobell:]

Okay. Thanks a lot. I appreciate it.

[Operator:]

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

[John Campbell:]

What’s the focus of the HSR review of LRO and are there any potential considerations from a delay like an impact of purchase price or anything like that?

[Bryan Hill:]

We can’t hear you, John; could you please repeat the question?

[John Campbell:]

Can you hear me now?

[Bryan Hill:]

Yes, it’s a lot better.

[John Campbell:]

Sorry about that. Just curious on the focus of the HSR review of the LRO acquisition and are there any considerations there from a potential delay that might impact purchase price or anything like that?

[Bryan Hill:]

No, we would not anticipate. No, I mean, look -- we’ll just extent the review process with the federal regulators, I mean they provide an important function to the marketplace, it’s a diligent process and we are cooperating and providing the information that’s being provided and it’s ongoing and we expect it to be completed at some point in 2017.

[John Campbell:]

Got it. And sounds like Axiometrics had a little bit better -- little bit higher than expected impact in 1Q so what was the organic asset optimization growth in the quarter and kind of how do you expect as a trend throughout the rest of the year?

[Bryan Hill:]

We’re seeing nice acceleration in organic growth within asset optimization as stepped up from Q4 to a 20% organic level in Q1. Axiometrics have outperformed our expectations it was just a couple of hundred thousand dollars incremental revenue than what we otherwise would have expected. But we would expect to continue to perform at the high teen to low 20% organic level.

[John Campbell:]

Got it. Thanks, Bryan.

[Operator:]

[Operator Instructions] Our next question comes from Pat Walravens with JMP Group. Please.

[Pat Walravens:]

Wonderful. Thank you and congratulations you guys. So my first question is Steve, what should we expect on lease management, I mean that decelerated just a little bit but it was a pretty easy comp. Should that be starting to get better? I know it’s been a long road.

[Steve Winn:]

We are taking -- well, first of all I think the macroeconomic shift is going to help any leasing in marketing product that anyone in this industry sells because there would be more need for marketing in general. We are continuing to invest in this category of products. And I didn’t disclose in my prepared remarks that we are introducing a new communications platform that we call unified communications that will allow you to take voice, text, chat and e-mail from any of our partners and route it to the leasing office or dynamically route it to our contact center. This is a pretty significant enhancement for the industry. They’ve been waiting for this for a while and I’m expecting that the contact center will benefit from that platform. So I’m optimistic this thing will begin to return towards the end of this year.

[Pat Walravens:]

Great. And then, secondly, correct me if I’m wrong here, but 17 years later you decided to introduce commercial property management, I mean that seems like a -- seems like actually a pretty big decision, why now?

[Steve Winn:]

Well, we’ve spend a lot of time looking at commercial over the years maybe 17, remember that long ago, but what we identified is there is a fairly significant hole in the market for small to midsize commercial operators. The primary systems that are sold here are Yardi and MRI and they’re intended for much larger operators of commercial real-estate but they’re expensive and difficult to implement for the smaller guys. So we saw an opening and decided to take it. Now we do have a commercial offering, have had for some time that is used by multifamily owners that have mixed use of retail or commercial in their apartment community. So maybe they have a few office buildings that are mixed in with all of the apartments that they own and operate. So we’ve always been in that business, but the shift here was really to build a new product intact this market. We are attacking it through bar channels. We typically don’t -- never used a bar channel, but we believe the way to get to this market which is quite large is through bars that can move the product for us instead of us having the field of sales force to go out and sell to these much smaller commercial operator. So it’s too early to know how that’s going to play out, but we didn’t -- we have launched that product and we’re getting good initial reviews and I’m optimistic it will do well. It clearly is going to be small relative to the other opportunities at RealPage has, so I wouldn’t read too much into that.

[Pat Walravens:]

Great. Thank you very much.

[Operator:]

Our next question comes from Mark Chappell with Benchmark. Please go ahead.

[Mark Chappell:]

Hi, thank you for taking my question. Steve, starting with you, you’ve touched on the Unity platform in your prepared remarks. I was wondering if you could just once again just kind of go over some of the platforms new capabilities, benefits as well as maybe discuss a little bit about the timing of the rollout?

[Steve Winn:]

Well, we began Unity two or three years -- that’s probably three years ago. We called it by different names, I think it started out as RealPage Next and then it became Foundation and as we began to roll this out through our clients, they all kept glamming on to the name Unity and so we decided we would name it with the customers have been calling it. What it does as it allows all of our products to be accessed through a single sign-on and more importantly a single authentication of each users. So you don’t have to setup users individually in each of our products, you set them up in one place. Unity includes a new contemporary user interface that is consistent across all of our products. One of the objections that we get from some clients is that RealPage acquired some of our technology and when they bounced from one application to another, they don’t look the same. And so what unity is doing is applying consistency across all applications. We did deploy the Unity platform on the NWP acquisition and I think this is -- substantiates the benefit that we’re realizing with the Unity platform. The Unity also dramatically reduces the cost of implementation and accelerates our ability to deploy products. I think this is quite important as we start to think about how to manage the business say beyond 2020 and continue the growth and margin expansion. We’re going to do that by really reengineering some of the core operational business processes that we used here in Unity is key to that. So it’s a big deal and it does represent a substantial amount of investment. It’s one of the reasons why product development only contributed 20 basis points and margin expansion in the first quarter and I would expect we will continue to invest very heavily in that platform with the goal of having the -- almost all of the work completed by the end of 2018. We are funding this investment and still reaching our margin expansion objective. So I haven’t talked about it too much because it’s really not impairing the goals that we set out to achieve.

[Mark Chappell:]

Thank you. And Bryan in your prepared remarks, you mentioned the -- you mentioned the good portion of the operating margin upside was driven by the lower sales and marketing spend and that’s good. Is it fair to assume here that your sales productivity initiatives are big driver of that leverage?

[Bryan Hill:]

That is correct. And as I mentioned on -- in the prepared comments we actually realized 15% sales force productivity improvement in Q1 that’s a slight step-up from Q4 which was at 10%. So, we expect to continue to drive or expect to continue to be able to drive sales force productivity as we proceed through the year.

[Mark Chappell:]

Thank you. That’s all from me.

[Operator:]

Thank you. With that, I’d now like to conclude the question-and-answer session and today’s conference call. Thank you for attending the conference today. You may now disconnect.