RealPage Inc
Q3 2017 Earnings Call Transcript

Published: 3 Nov 2017

[Operator:]

Good afternoon and welcome to the RealPage Third Quarter Results Conference Call. 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 and welcome to the RealPage financial results conference call for the third quarter ended September 30, 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, November 2, 2017, 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 August 4, 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 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 for joining us for our third quarter conference call. This has been another outstanding quarter for the whole team at RealPage as we continue forward in our mission to empower the real estate industry with transformational insight. I'm excited to share our results with you. In summary, our financial performance highlights exceptionally strong execution with total revenue growing 17% and adjusted EBITDA margins expanding 270 basis points, both compared to the prior year period and excluding the impact from the recent hurricanes Harvey and Irma. In addition, we closed the On-Site acquisition in the third quarter and have already made considerable progress integrating On-Site into our leasing and marketing platform. Plants utilizing competitive property market management systems will be able to seamlessly deploy the RealPage leasing and marketing platform, which we believe will be the most comprehensive front end and renter engagement suite in the industry. My remarks today will focus on five areas. First, investment in innovation that the company is making to position RealPage for continued revenue growth and margin expansion in the future. Second, the importance of bundle suite sales in our go-to-market strategy; third, I'll discuss some changes in our sales deployment strategy; fourth, an update on acquisition activity since the beginning of the year; and I'll close with the macroeconomic health of our industry. This is a lot to cover so let's get started. RealPage is a data driven company. We use our repository of real time operational data from nearly 12.3 million units to help rental housing operators, increased operational yields, while they own an asset. In addition we use our unique data rich platform to unlock actionable insights that enable our clients to make better decisions when operating, buying and selling apartment assets. We are fortunate to have the financial capacity to invest in multiple areas of innovation, while growing adjusted EBITDA levels at the same time. I'll discuss three such areas of innovation today. First, we are funding a project called Unity that allows us to share data across all applications, provide a single sign on and user authentication, deliver a consistent unit user experience across all products, build a vast library of shared services that all applications used, and build the technical framework that will enable us to add new clients and future acquisitions seamlessly. Unity is quite complex with many components. We completed work on some of these components some are nearly completion and some will require continued investment through the end of 2018 or beyond. Currently due to the progress we have made so far with Unity, the pace at which we can integrate acquisitions is accelerating. Bryan will share more details shortly, but we are encouraged by initial results from our Unity investments and expect to continue our investment here. Unity also enhances how our clients leverage data. For example David Ho, CEO of Virginia based new market investors, relies on a core suite of leasing and rents and budgeting and accounting to automate streamline processes and improved decision making at his property management firm. He could considers himself to be more hands-on than most CEOs and finds RealPage software to be remarkably intuitive to use. And he also appreciates how data from leasing and rents solutions flow seamlessly into our accounting solution. There is no redundant data entry and no need to dig into records from one area to feed another. Information captured in one part of the RealPage platform flows to the other area seamlessly. Second area of investment is the next generation functionality within our leasing and marketing platform. Our vision is to engage renters from the moment they began looking for an apartment and throughout their lives as a renter. As part of our leasing and marketing platform we are investing in a digital rights management system that collects and stores all forms of content used to reflect an owners' brand and property. We intend to capture rich content around the country covering 50 major MSAs, representing up to 50,000 properties. The content will include high resolution photos, 3D tours, interactive site maps and other forms of content gained through our employee base, on location property management and residence. We expect to release our comprehensive next generation leasing and marketing platform, featuring seamless integration with all RealPage leasing and marketing solutions, onsite solutions and incremental functionality in 2018. I'm most excited about the progress we have made integrating On-Site so far. We acquired this business less than 60 days ago and expect to launch a robust front end solution using onsite lease solution with a common RealPage look and feel before the end of the year. We have some clients' data testing in the next month with more clients eager to do so. Ultimately this means we can replace multiple leasing and marketing vendors with a comprehensive front end and renter engagement suite designed specifically for Yardi, AMSI and MRI clients that are new to the RealPage platform. We believe this is a game changer as we are addressing a perceived area of historical weakness for RealPage. Last major area of innovation relates to our asset optimization product suite, including YieldStar, business intelligence and data analytics. We are pleased to report that we have successfully combined the database for RealPage and AXIOMetrics giving us the most accurate market comps in the industry. We subscribe to be the source for market research in multifamily. Our large data footprint is enabling us to build the next generation of YieldStar optimization across four dimensions of yield management including demand, credit, leasing agent productivity and pricing. Only owners currently look at these four areas separately. RealPage has the data and the data science teams to combine all four dimensions into one decision engine, which we believe will further optimize operating and transactional yields. Next we continue to move away from selling individual products towards marketing suites that combine several product solutions into a single offering. During the third quarter over 35 clients adopted our core suite bundle, which includes solutions from each of the four product family categories. Average RPU for these clients was over $137 and included clients primarily in our corporate unit tier those with 5,000 to 20,000 units and our SMB unit tier less than 5,000 units. The SMB tier experience significant bundling activity ranging from deals with owners managing nearly 5,000 units all the way down to an owner managing 35 units. This is quite encouraging as it underscores the broad market applicability of our solutions, which we believe to be a significant competitive advantage for RealPage. During the quarter, we achieved strong overall sales bookings, in total new sales bookings were at the highest levels in the company history, and grew 17%, compared to the third quarter of last year. Sales force productivity also experienced solid traction with trailing 12 month bookings per quarter carrying rent growth at nearly 20% compared to the same period last year. Aided by learning from the acquisition of On-Site and AXIOMetrics metrics, we're refining our go-to-market strategy by deploying teams of dedicated solution reps that focused on specific product solutions. We believe that specialty sales teams can be more effective with product campaigns that require more in-depth knowledge of each product solution. We anticipate that the deployment of specialty sales teams will drive significantly higher bookings over the long-term and help deepen the penetration of our bundles. We expect that this will continue to be an area of modest investment for RealPage. Moving on, our M&A strategy is a key component accelerating our technology innovation in addition to the internal investments that I've discussed. Our acquisition of AXIOMetrics and American Utility Management closed earlier this year. The integration AXIOMetrics is in line with our plan and we've made significant progress achieving synergies and facilities migration, organizational structure and data acquisition strategies. Related to the AXIOMetrics acquisitions we're investing in the next gen operation of RealPage data analytics, which we expect will be deployed before the end of the year. The new platform is expected to address, not only the operational side, but also the transactional side of rental real stay. We're also working to integrate the AUM acquisition with RealPage, Residence Utility Management platform. When combined the new platform will leverage the industry's most accurate data base of utility consumption and cost data. We've already made significant initial traction on these synergies. In the third quarter, we closed the acquisition of On-Site, which offers prospect and resonate portals application or applicant screening, online leasing, online payment processing and e-signature lease execution primarily into third-party property management systems such as Yardi, AMSI and MRI. As I mentioned earlier, we are pleased to announce that the initial integration of On-Site lease management into the RealPage of consumer facing solutions was completed ahead of schedule due impart to Unity. I think the speed of this integration is noteworthy, because it demonstrates the power of our Unity platform that we have been developing over the past couple of years that enables us to rapidly integrate acquired companies. We believe that Unity will make it possible to integrate the On-Site lease management solution incorporating a single sign on authentication and user experience in only 10 weeks. Ultimately we expect all for the same in renter engagement functionality for Yardi, MRI and AMSI clients that we already offer to RealPage clients. As previously announced we've also entered into an agreement to acquire the lease rent options business of Rainmaker and the closing date is still pending regulatory review. LRO is a revenue management solution that helps optimize revenue for more than 1.5 million apartments. We recently submitted all materials we believe comply with the government second request and are now awaiting the decision. We believe the fact support our position and are committed to seeing this process through to its conclusion. Finally, we completed the acquisition of PEX Software Limited, a London based provider of property management, online leasing and residence software solutions. This platform serves market leading clients in the United Kingdom, European Union and Australia that manage private rental sector and student rental housing properties. In summary, we have the capital structure and the cash flow to support an active acquisition strategy, while maintaining comfortable levels of debt leverage and investing in future innovation. We will invest nearly $700 million of five acquisitions with the debt leverage of slightly below 4x trailing 12 months pro-forma EBITDA upon closing all five transactions and exiting 2017. Moving on to macro-economic trends, according to our data occupancy for the third quarter was 95.5%, which is still in the range considered a tight market, but slipping 50 basis points annually. Annual revenue growth registered 2.6%, which is roughly in line with long-term trend in consumers. Feeling a little more comfortable with rental housing prices, job similar to the typical wage growth after years when rents rose faster than their income. Before I conclude my comments, I'd like to touch upon the impact of hurricane Harvey and Irma during the third quarter. Our primary concern during both hurricanes was the safety and well-being of our residence clients and employees that were impacted by these catastrophic events. During and after the storm we added contact center agents to assist clients with emergency numbers because they were overloaded with calls from frightened and confused residence. In some cases with nowhere to go because their apartment unit had been flooded. Our renters insurance business does not cover flood related losses, but we do cover wind damage and alternative living expenses in the event of an evacuation. So these hurricanes did result in a one-time impact of $3.4 million in the third quarter. Bryan will provide additional details momentarily, but absent the hurricane impacts non-GAAP total revenue would have been $173.1 million near the high end of our second quarter guidance. Adjusted EBITDA would have been $43.4 million exceeding the high end of our second quarter guidance. In summary our third quarter results reflect our continuing success, empowering the real estate industry to unlock actionable insights and optimize real estate values. Our data rich platform, our integrated comprehensive suite, our innovation and acquired technology and our large market opportunity all continue to support our long-term goal of reaching $1 billion in revenue and $300 million of adjusted EBITDA by 2020. With that, I will turn the call over to Bryan.

[Bryan Hill:]

Thanks, Steve and good afternoon, everyone. Before we delve into the details of the quarter, I will provide a brief overview of the impact to our insurance business resulting from hurricanes Harvey and Irma. As a reminder revenue from our renters insurance solution consist of two components. The largest component is agent commission revenue, which we recognize ratably over the policy period typically one year. We categorize the agent commission as subscription revenue. The second component, which is much smaller is revenue that is contingent on the profit of third-party underwriters we categorize this revenue as transactional. When recognizing contingent commission revenue we estimate the expected profit based on the historical experience for the type claims incurred our renters insurance program ensures a policy holder's content and alternative living expenses. However damage resulting from flooding or rising water from the exterior entering the apartment unit is not covered. Over the course of operating this business for more than 10 years there has been only three catastrophic events that have cause claims activity to depart from historical experience. Two of those events are the recent hurricanes, Harvey and Irma that occurred during Q3. We have evaluated stop loss [ph] insurance and catastrophic event insurance to hedge our exposure that given only two quarters out of the past 10 years' experience abnormally high losses that cost to hedge our exposure has been difficult to justify economically. We will continue to evaluate these options, however our current thoughts are trading historical and frequent volatility for higher long-term revenue and ultimately profits is the right business decision. Specifically related to hurricanes Harvey and Irma, we originally scoped and announced an estimate of third quarter revenue impact with a range of $3 million to $4 million. The actual impact reflected in our third quarter financial results is $3.4 million and not reflective of the sustainable run rate of our business. Accordingly in our prepared remarks today our commentary will add back the $3.4 million in revenue to normalize the impact of the hurricanes so investors can more accurately compare results to prior periods and to highlight the strong underlying fundamentals of our business. If we adjust for the hurricanes total non-GAAP revenue would have been 17% higher compared to the prior year. In addition, adjusted EBITDA margin would have been slightly over 25%, representing 270 basis points of margin expansion. Overall the strength of our Q3 financial results further supports our progression towards $1 billion in revenue and $300 million of adjusted EBITDA. Underlying these results are successes from our past investments not only in the sales force, but also infrastructure investments that are accelerating the speed at which we integrate acquisitions and realize energies. First our past sales force investments are yielding strong results. During the quarter we achieved our highest new sales bookings quarter growing 17% compared to the prior year period. In the near-term we expect to modestly invest in specific sales force initiatives and further tailor our go-to-market strategy with product solution specialist. However improving productivity will continue to be a primary area of focus. Second, our decision to evolve the way we do business by investing in next generation RealPage infrastructure is paying dividends. Our Unity platform investment is accelerating the speed at which we integrate acquisitions and achieve synergies. Let's briefly dive into the details behind each acquisition we closed during 2017. AXIOMetrics which we acquired in January continuous to gain attraction, revenues in line with our expectations as for operating expenses we have eliminated redundancies, increased efficiency of our combined data acquisition teams and optimized certain labor components. As a result the purchase price valuation of AXIOMetrics now represents 11 times adjusted EBITDA on a run rate basis. We've consolidated AXIOMetrics data base with that of MPF Research, they still have more technical integration work to complete. I'm encouraged that by year's end we expect to be very close to achieving our purchase cross valuation at 8 times adjusted EBITDA, job well done by our asset optimization team. As for the AUM acquisition which we closed in June, our progress is even more impressive. AUM revenue traction is slightly above our expectations from an integration perspective we achieve significant synergies through eliminating redundancy between our resident utility management platform and AUM. There are still further technical integration work to complete that we expect will result in additional synergies. However, as of the third quarter, the AUM purchase price valuation represented 8 times adjusted EBITDA on a run rate basis. This is considerably ahead of our plan to achieve a purchase press valuation at 7 times adjusted EBITDA by the end of 2018. Last, On-Site is perhaps benefiting the most from the investments we're making in Unity, in three months we've identified and acted upon 50% of the expense synergy needed through achieve our purchase plus valuation target at 10 times adjusted EBITDA. In addition, we have line of site to unlock the revenue synergy expected from cross sell and the penetration of the 700,000 units new to RealPage as a result of the acquisition. This progress is considerably ahead of the pace necessary to achieve our purchase price valuation target at 10 times adjusted EBITDA as we exit 2018. Overall, we're extremely pleased with the integration efforts of our acquisition and product teams. Our investment in Unity and our capital allocation philosophy in general are both combining to not only drive compelling returns for our shareholders that doing so more quickly than we originally anticipated. Our third quarter results reflected a couple of takeaways that I'd like to highlight. Again we have removed the hurricanes impact to normalize our results. First, on demand revenue grew 18% compared to third quarter last year. The subscription component represented 92% of on demand revenue and grew 20%, units grew 9% compared to the prior year quarter. Revenue per unit was nearly $58 and grew 15%. Annual client value was $709 million, represent a 25% growth. The primarily drivers of this performance were continued consistent growth from property management at 8%, continued strong growth from resident services of 27% and significant growth from asset optimization of 46%. Leasing and marketing was flat compared to last year, but we expect acceleration in this product category in 2018 with the addition of On-Site combined with current year investments and investments planned for 2018. Property management growth was driven by strong growth from our spend management solutions, as well as solid adoption of our One Site and accounting solutions. Residence services is benefiting from strong growth from our payments and resident utility management solutions, which include the AUM acquisition. Asset optimization continues to see accelerated growth, driven by our data analytics, BI and revenue management solutions. As a reminder the acquisition of AXIOMetrics is included in our data analytics solutions, asset optimization organic revenue continues to show solid client adoption evidenced by 21% organic growth when compared to the same period last year. Second, our profitability performance continues to track towards $300 million in adjusted EBITDA, while we continue to invest for the future. We achieved $43.4 million of adjusted EBITDA a margin of 25.1%, reflecting margin expansion of 270 basis points and growth of 32%. Gross margins was 64% excluding depreciation, amortization and stock-based compensation and was accretive to aggregate margin expansion by 170 basis points. Gross margin expansion was driven by scale in our multifamily and IT operations, partially offset by incremental cost from our acquisitions. Total operating expense on a non-GAAP basis for the quarter was 42% of revenue. As we look at the components, product development expense as a percent of revenue was 11%, up 10 basis points exhibiting modest margin compression, primarily driven by product initiatives and incremental cost from acquisitions. For the fourth quarter, we expect product development to continue to increase as a percentage of revenue as we incur incremental development cost regarding the Unity platform, acquisition integration and product platform enhancements primarily related to leasing and marketing, as well as asset optimization. Sales and marketing expense as a percentage of revenue was 19% declining 40 basis points. The leverage was a result of scaling our historical sales investments despite incremental cost from acquisitions. Moderate sales force investments and cost related to our annual users conference. General and administrative expense as a percentage of revenue was 11%, down 70 basis points. Leverage was driven by the domestic and international infrastructure investments enabling scale longer term, partially offset by incremental cost related to our 2017 acquisitions. From a profitability perspective, I want to highlight that we continue to feel confident with the long-term leverage opportunity of the business that includes investments to integrate acquisition, enhance our leasing and marketing solutions, deploy our next generation Unity platform and in many other areas throughout the RealPage platform. Including all of these initiatives, our contribution margin for the quarter was 41% on year-over-year revenue growth. Moving to cash flow performance, during the quarter we generated $26 million of operating cash flow. Operating cash flow levels were compressed, compared to the same period last year, primarily due to higher operating cash flow in Q3 of 2016 related to the accounting treatment of our headquarters move, and 2017 timing within our working capital accounts, which were largely resolved early in the fourth quarter. Now moving to guidance, we're continuing to exclude LRO from our outlook until we have a certain close day. For the fourth quarter of 2017, we expect non-GAAP revenue in the range of $183.2 million to $186.2 million, adjusted EBITDA is expected to be $44 million to $45.5 million and non-GAAP diluted earnings per share is expected to be $0.25 to $0.26 per share. For the full year 2017, we expect non-GAAP revenue of $668.8 million to $671.8 million, adjusted EBITDA is expected to be $160.5 million to $162 million. And finally non-GAAP diluted earnings per share is expected to be $0.91 to $0.92 per share. In summary, the business continues to be on strong financial footing. We're investing in multiple areas across the company to drive future revenue growth, while continuing to achieve significant adjusted EBITDA growth. We're benefiting from strong sales force productivity gains, and sooner than expected synergies from our acquisition. I'm confident all of these factors will help us achieve our long-term financial goals. This concludes our prepared comments. Operator, I'd like to open the call up for questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from John Campbell of Stephens. Please go ahead.

[John Campbell:]

Hey, guys good afternoon.

[Steve Winn:]

Hey, John.

[John Campbell:]

So great work in the quarter, I mean, excluding the hurricane really, really good fundamentals looks like, nice work there. On the RPU, if we look at just like the top 100 and top 50 cohorts, it looks like, if you look back to 2014, 2015 top 50 was growing at a pretty rapid pace and then now you are seeing like the top 100 over last two years growing much faster. Just curious what's driving that, is that just better cross sells further uptake just out of those clients between 51 and 100?

[Bryan Hill:]

Now what we are finding John is as our largest adapters and our largest clients as they continue to adopt they gain momentum and acceleration through the cross sell effort that's why we are excited about the acquisitions of AUM and also of On-Site, which collectively added 900,000 units with a very low RPU because our view is we can cross sell into those units and they will begin to adopt at an accelerated fashion like our top cohorts. So we are really excited about the progress in those areas.

[John Campbell:]

Okay, that's helpful. And then, I mean, if I think about your total employee, I mean if you think about your total customers, if you look at the top call it 101 to 200 or 250 what is the pace of growth there, are you seeing the same type of uplift?

[Bryan Hill:]

So that cohort is growing at a slightly slower pace to no larger client base because again the larger clients are adoption at an accelerated fashion. Typically what we have found overtime is we would add a new client at an RPU of $20 and then they would accelerate overtime. But what we are seeing most recently in 2017, which Steve touched based on in his group is we're seeing now larger suite sales at the initiation of a client relationship where clients are coming on at a much higher RPU in many cases north of $100. So, the trend as you segment the client base continues to be the top adopters are growing the fastest with next cohort accelerating as well. But what we're encouraged by the most is the overall adoption of new clients as they come on to the platform.

[John Campbell:]

Okay. And then last one from me. Bryan, I heard you mentioned the 21% organic growth in asset optimization that's a really good results for you guys. I'm might have missed this, did you say what the total company wide just I guess excluding the hurricane impact?

[Bryan Hill:]

Yes, so for the quarter we're at 10% excluding the - or slightly above 10% excluding the impact of the hurricane. Our guide for Q4 show a slight acceleration to 11%.

[John Campbell:]

Okay, excellent. Thanks guys.

[Operator:]

The next question is from Monika Garg of Keybanc. Please go ahead.

[Monika Garg:]

Hi, thanks for taking my question. Just a housekeeping, how much is On-Site adding in Q4 both in revenue, EBITDA?

[Bryan Hill:]

On-Site added right around $700,000 of revenue we only had the acquisition for five days of the quarter. And EBITDA was insignificant amount, it was around a $100,000.

[Monika Garg:]

And in Q4, how much are you expecting?

[Bryan Hill:]

So, in Q4 what we're expecting is $10.5 million from On-Site from a revenue perspective and from an EBITDA perspective approximately $1 million. Now the $1 million is net integration any incremental integration cost that we expect to incur. But what's encouraging about On-Site is the speed in which we have identified the expense synergies necessary to hit our purchase price valuation and what we are finding as we proceeded through 2017 the investments that we have made in Unity and the efforts of our product and acquisition teams were becoming much more depth at integrating acquisitions and realizing the synergies much sooner.

[Monika Garg:]

Is there any way to quantitatively understand the revenue synergies the cross sell revenue you could generate from On-Site in 2018?

[Bryan Hill:]

So, I mean, we have quantified it internally, we haven't spoken to this externally. On-Site brings a significant opportunity for us in the couple of different ways. First is the 700,000 units that are new to RealPage those units come over at an RPU average of around $20, we're currently the company averages at $58 that is the RealPage company average and we have cohorts that go much higher than that with our top 50 RPU clients at a $188 of RPU. So we are very excited about the cross sell opportunity into those 700,000 units. Now On-Site also has another 1.7 million units that currently use one or more of RealPage's products. But what we are excited is those units predominantly are utilizing a competing property management system. So what this does for RealPage is it provides us the opportunity to now cross sell our products into units that are now using a third-party property management system such as MRI and Yardi. The area of focus will be predominantly the front end or the renter engagement leasing applications of our platform.

[Monika Garg:]

Got it, thanks. Just a last one, in the past you have talked about potential opportunities in the commercial real estate market for you, maybe update us your strategy on that? Thank you.

[Steve Winn:]

We have launched a new product last year, focused on mid-market commercial real estate operators and we are getting some traction with that platform. It's early in the lifecycle of that to product to know where it's going to go, but we are pretty excited about what we have been able to achieve in just one year, since it was released.

[Monika Garg:]

Thank you so much.

[Operator:]

The next question comes from Matt Headberg of RBC Capital Markets. Please go ahead.

[Dan Bergstrom:]

Hi guys, this is Dan Bergstrom for Matt Headberg here, thanks for taking my questions. So Steve there has been a lot of activity this year, covered a lot of ground on the call as you mentioned. If you could zero into maybe one or two transactions, trends, products that you think have been most impactful for you this year, or you are looking to be most impactful going into next year, what would that or those be?

[Steve Winn:]

Well, that's an easy question. The onsite acquisition gives us the ability to sell our entire front end marketing suite into Yardi, MRI and AMSI clients with the same functionality that we offer to our one site customer. So, we think there is a really great short-term opportunity and the fact we have been able to integrate On-Site into our front end suite so quickly has been helpful. Second area that I am most enthusiastic about is the integration of the AXIOMetrics and RealPage databases and you will see a substantial number of new products that roll out as a result of this new integrated data platform that we're very excited about and expect to see literally in the next quarter.

[Dan Bergstrom:]

Great, thanks. And then maybe one for Bryan, Bryan thanks for the M&A recap that was very helpful for this year. Maybe if we think through kind of the deals in total what was added on this year is there any sense of what was that impact overall, operating margins or EBITDA margins, maybe for this year or maybe more so next year, when we've got a whole year of everything in.

[Bryan Hill:]

Yes, so the margin impact from the acquisitions initially dilutive, they are dilutive year-to-date little bit over 100 basis points on the adjusted EBITDA margin line, but we've made lots of progress in the integration effort and identifying synergies and acting on those synergy initiative. The way to think about the acquisitions cumulatively is as we exit 2018, we expect all acquisition including LRO to be at a 10 times purchase price valuation. So, that would add approximately $70 million of EBITDA on a run rate basis, as we exit 2018.

[Dan Bergstrom:]

Thanks, great.

[Operator:]

The next question is from Brandon Dobell of William Blair. Please go ahead.

[Brandon Dobell:]

Thanks. Actually Steve leveraging off your just recent comments here about the new products around the data offering. Should we expect the introduction of slew of new products to help you guys accelerate growth in asset optimization from this point forward or just sustain the growth rate kind of high-teens, low 20s organic for a longer period of time?

[Steve Winn:]

Well, compounding 20% is not bad.

[Brandon Dobell:]

Not, certainly not bad.

[Steve Winn:]

It's all a function of how quick the uptake is on this new products, since we haven't launched them, it's hard to predict how fast they will be adopted, but I'm optimistic that we're going to see much faster adoption of these products. Because, we're introducing a new concept in self-provisioning. So, we don't actually have to fill out an order anymore. The customer will be able to order all three of these products by clicking a button on the website.

[Brandon Dobell:]

Does that self-provisioning extend across the entire suite of products you guys offer or is it just going to confined to the data products?

[Steve Winn:]

Well, our go-forward strategy is to self-provision as many new products as possible some you can't - it's just not practical overtime, we're going to retrofit self-provisioning in the some of the workforces of RealPage, but that's going to take time. But, clearly everything going forward you're going to have good reason not to self-provision for us to approve it. Yeah, Brandon our initial a best opportunity for self-provisioning relates to add-on products to an existing major products or functionality, where the conversion effort is low. But turning on the product and receiving value from the product quickly is very high. And that's where we're primarily focused. But, the longer term vision, which will become much more practical once we're further along with our Unity investment, is to have as many of our products as possible in a manner, which we can self-provision, that becomes even more important as we continue to push our products downstream to the lower end.

[Brandon Dobell:]

Got it, okay. As we think about the, I guess, your comments around the go-to-market strategy, what kind of order of magnitude changes are the people on the ground going to see, feel, kind of be responsible for putting into place, I guess the context here is, you guys have gone through a small number or maybe a mid-size number of either changes in sales force structure organization or incentive structure. Just trying to get a sense of the risk of disruption, as you guys think about how to go to market or the risk of sales force attrition, those kind of things. How do we think about the risk associated with the strategy?

[Steve Winn:]

Sales force is making a lot of money now, so, there is a - and I think it's important to stress what's not changing we made a decision over a year ago to organize the sales force by market segments. So we sell into the enterprise customers, corporate SMB, senior, affordable and student of markets with separate sales forces. And that segmentation strategy has been very, very impactful. What we are layering in now is a more emphasis on what we call solution reps and these are reps that focus on leasing and marketing products, asset optimization products, spend management products, and finance and accounting products. A large number of the salesmen that will staff those organizations have come from acquired companies. So, while you should see some expansion in the sales force, it's not going to be - I don't want to imply that it's going to be a dramatic upper change, but it will increase the number of salesmen going forward.

[Brandon Dobell:]

Got it. Okay. And then the final one for me is as you think about the drivers for the renewal rate that you guys disclosed in the supplemental data sheet, and you look back at the acquisition the past couple of years, how much attrition do you think you've had on a unit basis, you require a company it's got a bunch of units and some of those units just say we are going away from this product, away from RealPage or we're focus on other vendors. I guess I am just trying to get a sense of the different components of the renewal rate either by customer type, acquired or product type, if any color there you can provide that would be great.

[Steve Winn:]

Brandon our client retention from acquisitions is really very high, higher than you would probably expect, where we see unit attrition is not does similar to what we see within RealPage, which is typically that low adopter, low RUP and they often time find that the full platform for RealPage is a little bit more than what they can deal with from a sophistication perspective. Now, we will always argue and we have lot of success penetrating the lower end of the market that given the right training and time, that same client base will be able to extract the same return on investment as the large client at the upper end of the market.

[Brandon Dobell:]

Got it. Okay, thanks.

[Operator:]

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

[Natasha Asar:]

This is actually Natasha on for Pat. My question what are the key points about the difference between how you approach the market compared to CoStar in terms of those organic growth strategies and acquisition, seems like your converging?

[Steve Winn:]

Well, we have a lot aberration for CoStar, but we like our model better, CoStar is selling into multifamily, both internet listing service and set of data analytics products, and our understanding is they use the same sales force to sell both. We also have a general sales force they sale all products, but we have determined that we do need specialty sales forces and we have one in asset optimization that will compete directly against CoStar and we have one in consumer solutions area that competes not so much with CoStar because we don't really view ourselves as an internet listening service. But with other contenders that are selling websites and contact centers and all the other things we market in our leasing and marketing suite.

[Natasha Asar:]

Great, thank you.

[Operator:]

The next question is from Mark Chappell of Benchmark. Please go ahead.

[Mark Chappell:]

Hi good evening, thank you for taking my question here. Steve given the acquisition of UK based PEX, I was wondering if you can just talk a little about the opportunity to access overseas do you see?

[Steve Winn:]

This is a market that we have long-term aspirations to enter and what we are doing is following our customers in the U.S. overseas. So, the entry into the UK actually started over two years ago when Greystar decided to buy a portfolio with Goldman Sachs and we competed to win that business for Greystar and we were very successful with that and we deployed a contact center in Barcelona, which is where we operate our vacation rentals business for Europe. And we've introduced an asset optimization or revenue management system in the UK and we needed to get some team on the ground in the UK and PEX had a great reputation and was particularly strong in their front-end, marketing suites in that we can plug right into our property management and accounting solution. So it was a good fit for us, we like the management. They have a small operation in Australia, and we expect to use PEX as really a launch pad for entry into the European Union and in general. But, again it's going to take a while for international become a material element of our overall revenue stream.

[Mark Chappell:]

Great, thanks. And then if I recall correctly, a quarter or two ago, you released a new call center solution to help with your leasing and marketing division or business unit. And again it's still early days, but I was wondering if you could just give us an update how that solution is fairing?

[Steve Winn:]

Well, the solution allows us to support text, chat, email and phone calls all on the same platform, where historically, we had separate systems that were used for each type of communication. We're in the early phases of rolling that out. And there is a substantial amount of additional functionality that we'll be adding in the course of next 12 months to that platform. So, I think it's a little early to know.

[Mark Chappell:]

Great, thank you.

[Operator:]

The next question is from Sameer [indiscernible] of Deutsche Bank. Please go ahead.

[Unidentified Analyst:]

Hi, this is Sameer calling for Nandan. The Harvey and Irma impact, is it just a one-time $3 million to $4 million this quarter or do you think anything like that or maybe smaller could happen over the next few quarters, particularly in December and January?

[Steve Winn:]

So, yes, it's a one-time impact in the quarter we incurred $3.4 million, and that was based on our original estimate of $3 million to $4 million. So we monitor the activity within this business very closely, we've become very proficient at estimating the losses and becoming more or less experts, as it relates to this business. I think the point, that I was making on the call in our prepared comments is we've owned this business now for over 10 years, and we've had two quarters within that ten year period, in which we had, what we would view is variability outside of and above our historic claim experience. So, I would suspect that future claims will be in line and consistent with past experience. However, we can't predict when that next event will occur, but again the history has been only two quarters over a 10 year period.

[Operator:]

This concludes our question-and-answer session, and our conference. Thank you for attending today's presentation. You may now disconnect.