RealPage Inc
Q4 2016 Earnings Call Transcript

Published: 28 Feb 2017

[Operator:]

Good day everyone and welcome to the RealPage Fourth Quarter and Year End 2016 Financial Results 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 the event is being recorded. I would now like to turn the conference over to Rhett Butler, Vice President of Investor Relations. Please go ahead, sir.

[Rhett Butler:]

Good afternoon, and welcome to the RealPage financial results conference call for the fourth quarter and year-ended December 31, 2016. 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, February 27, 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 on our Quarterly Report on Form 10-Q previously filed with the SEC on November 8, 2016, 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 fourth quarter and full-year 2016 earnings call. 2016 was an exceptional year for RealPage with strong financial performance. I'm very proud of the execution discipline we have displayed and the value we have created for our shareholders. Total revenue for the year grew 22% to $567 million compared to the prior year. Adjusted EBITDA grew 38% to over $127 million and operating cash flow excluding the accounting treatment of tenant reimbursements related to our headquarters move grew 23% to $117 million. Some of the highlights driving our 2016 performance include overall multifamily sales productivity expansion of over 20%, increasing adoption of suites of multiple product families, acceleration of revenue growth in our asset optimization product family, continued adoption of resident service solutions driving strong revenue growth, and finally, exceptional execution in the integration and operation of our NWP acquisition from about a year ago. As we look to 2017 and beyond, there has never been a more exciting time for RealPage. Our vision is to empower the real estate industry with a unique and powerful data rich platform that improves operational returns through increased revenue, reduced expenses, and less risk. Our vision is expanding beyond just the operational holding period of an asset to include the transactional side of real estate where we help optimize the yield on the purchase and sale of an asset. Our solutions are comprehensive, integrated, and create an entire ecosystem from the renter before the renter from the moment they reach out to find a rental home through their search process talking to a RealPage contact center agent to screening, pricing, leasing, and finally closing the lease. We bill the resident for everything including rent and utilities and then collect our payments through a variety of online methods. We help operators reduce expenses through our marketplace of certified vendors and through tools that improve the efficiency of employees that run the apartment from day-to-day. To help operators reduce risk through renters insurance products that we sell to residents and verification of insurance coverage for vendors that perform work on the property, we help operators maximize asset yields through data rich solutions such as revenue management, business intelligence, and performance benchmarking. Finally, we provide lease accounting, property accounting, corporate accounting, job cost accounting, and investment accounting, to report financial performance of assets to each constituent that has a vested interest in the property. We believe the market for the products and services that we currently sell is well over $11 billion in the U.S. and at least this much again outside the U.S. Last year we established a goal to achieve $1 billion in revenue and $300 million in adjusted EBITDA by 2020. To achieve this goal, we need to grow revenue by 15% per year and expand adjusted EBITDA margins by about 200 basis points per year. While we exceeded this pace of growth in 2016 by quite a wide margin and our total growth expectations for 2017 that includes the acquisitions of Axiometrics and LRO are expected to exceed this pace again in 2017. So we are well on our way to achieving our 2020 goal. In establishing our growth objectives we thought that total growth of 15% was reasonable when considering the underpenetration of the market and our historic new sales success both supplemented with acquisition opportunities. Let me provide you some perspective on our 2016 progress. First, I'm quite pleased with the actions we took to improve sales productivity in 2016. Our multifamily sales team increased bookings productivity per rep by over 20% and our cost of booking is down over 5%. Our corporate and SMB segments are driving a large part of the success demonstrating our ability to reach all unit segments of the multifamily market. We also continue to experience more success with suite sales where we bundled many products into a single offering. For example, we recently signed an agreement with LYND company in San Antonio to license a suite of RealPage Solutions, including leasing and rent, screening, accounting, facilities, spend management, invoice processing, contact center, revenue management, business intelligence, performance analytics, leasing modules, and online prospect resident portals across their 25,000 units that include both conventional and affordable assets located in 16 states and 15 different metropolitan areas. During 2017, our Chief Revenue Officer, Ashley Glover, will continue to focus on sales productivity to encourage broader client adoption of our platform and to improve marketing effectiveness and client satisfaction. With respect to M&A activity during 2016, the integration of National Water & Power or NWP which we acquired about a year ago is now almost complete and we are extremely pleased with the outcome of our integration efforts. We combined NWP on our legacy velocity billing systems to create a new platform called RealPage Utility Management which leverages the best aspects of both systems. It supports all of the billing methods in both the NWP and velocity systems with the same front-end user experience and the same backend reporting and dashboard. Now that we're about a year into the integration, we are very pleased with our progress and exited 2016 with a purchase price valuation under six times adjusted EBITDA for the NWP acquisition ahead of our pro forma projections. I want to thank Ron Reed, who was the President of NWP and his team as well as the RealPage's who worked so diligently to make this acquisition successful. RealPage Utility Management is group within our resident services product family, which also includes payments, renters insurance, and the resident portal. All of our resident service products now represent 42% of our total revenue and delivered 49% growth in 2016. We've been very active from an M&A perspective in early 2017 allocating $375 million of capital to the acquisition of Axiometrics which we recently closed and our agreement to acquire LRO which we announced today. We recognize the unusually large capital commitment that these acquisitions represent relative to other M&A activity that has preceded these deals. However we do not try to project the amount of M&A activity that will occur in any given year. We evaluate acquisition opportunities within the framework of our global strategy and disciplined return requirements as they present themselves. We have always expected there will be some choppiness in the timing of M&A activity and this activity can serve to accelerate the achievement of our longer-term objectives. Both the 2017 acquisitions bolster our asset optimization product family. We believe that precision data analytics and price optimization solutions offer the best opportunity to increase yields from the $3 trillion of apartment stock in the U.S. turning over at a rate of about $150 billion per year. We believe there is swelling demand for solutions that bring efficiency and precision to an industry that historically has lacked the tools available in other asset classes. With the acquisition of Axiometrics and LRO as well as our partnership with Real Capital Analytics, RealPage possesses enormous data scale and the deep pool of data sciences needed to extract actionable intelligence from this data. A couple of examples may illustrate how deep our analysis can go. First, we pull data on Class A apartments in Seattle and new lease applicants are paying 25.8% of their income on rent. The average lease term on a new lease is 11.2 months, 49.5% of expiring leases renewed, and a vacant unit remains unoccupied 26 days on average. Second, we pool data on Class B apartments in Charlotte and new lease applicants are paying 22.9% of income on rent, the average lease term is 12.7 months, 56.8% of the expiring leases removed, and a vacant unit remains unoccupied 31 days on average. This is the type of precision data that can be acted upon to improve operational and investment yields and is not available from other providers of data analytics. And this is only a fraction of the data we gather. We can isolate apartment assets at a zip code and street corner level of detail. Our statistical base modeling and forecasting tools are uniquely effective because they are also based on the superior data and data science that we have accumulated over decades. We are not simply scrapping websites and using manpower to aggregate asking rents in order to cobble together a clip notes version of the truth. Lease transaction data is the truth and it powers our entire platform. With the acquisition of LRO, we will expand our repository of real time lease transaction data by approximately 1.5 million units. Briefly let me explain why lease transaction data is so important by contrasting it the alternative data sources used by competitors. Data that is built off of asking rents straight from rent sites or listing services is keen to building a database of asking quotes for a particular stock. While useful you really need the bid to complete the equation and accurately pinpoint where supply and demand meets. RealPage possesses both the bid and the ask with lease transaction data. So we can deliver precision information for pricing decisions or decisions to place and harvest capital. We use our expensive data analytics capability to create competitive advantages which we monetize in many ways today through our asset optimization platform. Currently less than 10% of the roughly $45 million rental housing units in the U.S. utilize data driven pricing science to improve yields. We believe penetration of asset optimization and software and data analytics is even lower within international markets. So now is the time to double down on asset optimization in our view because it is an industry still in its infancy on a global scale. Ultimately we believe the combination of Axiometrics and LRO with the comprehensive capabilities of RealPage will drive acceleration of our asset optimization revenue as we attack this vastly unpenetrated opportunity. Moving on to the rental housing macro environment, our MPF research division reported that occupancy for the fourth quarter was 96.1% nationally, up from 95.9% in the fourth quarter last year. We are still just shy of an all-time occupancy peak which was set in the tech boom period in 2000. According to Greg Willett, our Chief Economist, almost all of today's vacancies in most locals are found in the very expensive new completions moving through initial lease up. It can be very tough to find available units in middle tier or low-end, where low-end where prices are typical. Fourth quarter rent growth on average across the country was 3.7% down from the over 5% peak growth experienced in 2015. Rent growth remained strong compared to historical rent growth and during the current economic cycle which began seven years ago rents have increased a whopping 27%. Despite this strength, we are beginning to see weaknesses in many markets especially in the Urban Core Class A properties. Ongoing apartment construction in the nation's 100 largest apartment markets total over 539,000 units with nearly 633,000 of those apartments found in property schedule for 2017 completion. This equates to new supply coming in to the year topping the 2016 total by 25%. That big bump in deliveries points to more competitive leasing conditions, especially for top tier properties in the Urban Core where construction is heavy by historical standards. In the past few years, demand has been so strong that many operators simply didn't believe they needed precision pricing tools because all ships go up in a rising tide. However as the market softens mistakes can be costlier and we believe owners and operators will better recognize the importance of pricing science and data analytics precision as well as more investment and marketing tools to attract and capture demand. Now for a brief update on quarterly product performance. Our property management product family grew 10% year-over-year and represents 28% of our total on-demand revenue. Within this product family, property management solutions for multifamily, single family, spend management, and our accounting solutions continue to drive revenue traction. We are excited about the integration of spend management with our payment platform or payment processing platform because this opens up another revenue source since we can collect transaction fees for every payment made through our network. We also acquired a small group purchasing platform in 2016 called ESupply which enables small to mid-sized clients to purchase goods and services through a free negotiated catalog prices that our vendor partners have provided to us. Our resident service product family, as I said earlier, grew 49% year-over-year and represents 42% of total on-demand revenue. Our acquisition of NWP, payment renters insurance, and resident portal solutions, continue to drive the significant revenue traction we are experiencing within this product family. RealPage payment processing services, a license money services business, processed $25 billion in annual transaction volumes during 2016. Many of our competitors in Knight are not licensed MSBs and we believe this limits their flexibility to keep up with the new and creative payment processing methods that are evolving in our industry without subjecting themselves to potential regulatory risk. Our lease management product family declined 3% year-over-year and represents 20% of total on-demand revenue. The decline was primarily attributable to the lack of revenue from our senior living referral business which we recently sold, continued weakness from the contact center, partially offset by screening and online leasing growth. We still believe that the strong back half contact center bookings and the recent softening of certain apartment markets will translate into more owners adopting a platform that dramatically improves capture rates for their lead generation initiatives. Our asset optimization product family grew 20% year-over-year and represents 10% of total on-demand revenue. Our YieldStar statistical pricing engine and Business Intelligence Solutions continue to show strong momentum. We are excited to leverage this momentum as we integrate the recent acquisitions of Axiometrics and LRO. We are also seeing widespread acceptance of our asset and investment management suite of products. Last year, we entered into an agreement with five of the leading real estate consulting firms to help us meet the implementation and consulting requirements needed to deploy this solution since we don't believe we can keep up with the demand by ourselves. While AIM is an abbreviation for Asset Investment Management contributes a relatively small amount of revenue today, we believe this platform will grow much faster than our core business and is a key competitive advantage in selling to institutional clients. Going forward, we believe that consistent execution by continuing strong leadership position within rental housing, followed recurring revenue growth and retention, strong profitability growth and cash flow generation, a business that should benefit further as apartments move back into supply/demand equilibrium, and finally, our comprehensive repository of resident and market data has only partially monetized all combined to position us well to achieve our 2020 goal. With that, I will turn the call over to Bryan.

[Bryan Hill:]

Thanks, Steve, and good afternoon everyone. 2016 was an exceptional year for RealPage. Our 2016 performance outpaced the annual performance required to achieve the 2020 objectives of $1 billion in revenues, $300 million in adjusted EBITDA. Our 2020 objective was intended to provide our view of longer-term opportunities for RealPage. During 2016, we achieved total revenue growth of 22%, adjusted EBITDA margin expansion of 260 basis points, and operating cash flow growth excluding tenant reimbursements of 23%. What stands out is not only the diligent focus on efficiency that our team has demonstrated to drive profit levels to historical highs; it's that we were able to invest for the future while exceeding our margin expansion objectives. Let me provide you a few examples. We invested in NWP which will contribute to our long-term financial goals and significantly expands our presence in utility billing. During 2016, NWP diluted our adjusted EBITDA margin nearly 100 basis points. However this acquisition represents a purchase price valuation below six times EBITDA based on its 2016 exit profit run rate, quite an accomplishment for the first 10 months of owning the asset. We also invested in our investment analytics solutions ahead of the data analytics opportunity which we feel is significant. This investment diluted adjusted EBITDA margin approximately 30 basis points. But most importantly, we invested over 100 basis points of EBITDA margin to develop our next-generation infrastructure intended to enable the company to scale, accelerate client adoption of our platform, and improve client satisfaction over the long-term. These investments are separate from various other areas; we continue to invest in such as our accounting and commercial solutions as well as our asset investment management platforms. In summary, our infrastructure and processes allow us to invest for the future particularly with respect to our acquisition program, while achieving our current margin expansion goals. As Steve mentioned earlier, our acquisition program identified two compelling companies that complement our data centric strategy. The recent acquisition of Axiometrics and LRO are significant step forward as we strive to aid real estate owners and operators to optimize operational yields and investment returns. While the purchase price valuation for these acquisitions is richer than our typical transactions, these assets are highly strategic in accomplishing our data analytics and yield optimization objectives and they will be accretive to revenue growth and margin expansion during 2017. We also expect the acquisitions will contribute to strong asset optimization revenue growth over the long-term leveraging the acceleration we experienced in that product family category during Q4 2016. Now for quarterly operational performance. In Q4, we delivered 23% total revenue growth and better than expected profitability. We expanded adjusted EBITDA margins 240 basis points compared to the prior year representing 36% adjusted EBITDA growth and 38% non-GAAP EPS growth. Q4 marks one of the highest levels of adjusted EBITDA margin in company history. On-demand revenue for the fourth quarter grew 21% compared to last year. Our subscription revenue stream grew 22% compared to the prior year and represented 91% of on-demand revenue. Revenue growth was driven by our acquisition of NWP and solid growth from our property management product family, significant traction from our resident services product family, and accelerating growth from our asset optimization product family. ACV or Annual Client Value grew to $566 million or 21% compared to the prior year. Our top 100 ACV clients possess an average RPU of $78. The aggregate ACV for this group grew 24% during 2016. We ended the quarter with a 11 million units representing an increase of 4% compared to the same quarter last year. Our number of ending units excludes the units associated with our senior living referral services which were sold to A Place for Mom during the fourth quarter. RPU was nearly $52, an increase of 16% compared to last year. Our top 50 RPU clients possess an average RPU of $186 and this group's aggregate ACV grew 28% compared to last year. The top 50 RPU clients includes a diversified mix of enterprise, corporate, and SMB submarkets. Moving on to profitability for the quarter. Profit performance continues to exceed our expectations. Our actions have resulted in significant adjusted EBITDA margin expansion and significant non-GAAP EPS growth. Gross margin was 64% for the fourth quarter essentially flat with the last year. Gross margin was diluted 210 basis points by our acquisition of NWP. As you may recall, NWP possesses a higher mix of sub-meter installation revenue that carries a lower gross margin as well as a predominantly domestic workforce supporting both resident billing and invoice processing solutions. Excluding NWP, gross margin expansion was driven by scale and efficiency gains across the business combined with a higher mix of payment processing and renters insurance revenue. Total operating expense grew 16% compared to last year and as a percentage of revenue, it declined 240 basis points to 42.2% the lowest level in company's history. With respect to the individual components of total operating expense, product development expense grew 18% compared to last year and as a percentage of revenue, it declined 50 basis points to 11%. The primary driver of expense growth was incremental headcount related to NWP and our product investments I previously mentioned. Sales and marketing expense grew 8% compared to last year and as a percentage of revenue declined 260 basis points to 18%. The primary driver of expense growth was incremental cost from NWP. Sales team headcount was 366 at the end of the fourth quarter down sales team members, nine sales team members, that is or 2% compared to last year. During 2016, we moderated sales force investments and removed underperforming sales reps primarily from our multifamily sales force. We ended the year with new sales momentum. 2016 was a successful new sales year with growth in bookings and strong productivity. Our multifamily sales force improved productivity just over 20%. We will continue to invest in specific areas such as the institutional, single family, and vacation rental markets. General and administrative expense grew 29% compared to last year and as a percentage of revenue it increased 60 basis points to 12%. The primary driver of higher G&A relates to the incremental costs resulting from our NWP acquisition. This is one of our key focus areas as we expect to achieve additional synergies in 2017. In addition, we incurred higher professional fees and related costs from various projects we expect to be non-recurring. Finally, we experienced higher variable compensation costs related to achievement of certain profit milestones. Non-GAAP net income for the fourth quarter was $17.3 million or $0.22 per diluted share. Adjusted EBITDA for the fourth quarter was $36.1 million or 24% of revenue representing 240 basis points of margin expansion compared to last year. Moving to cash and liquidity. Cash and cash equivalents were nearly $105 million at December 31, 2016, compared to $31 million at December 31, 2015. Total debt was $122 million as of the end of 2016 and we expect this level to increase $300 million related to the acquisitions of Axiometrics and LRO. This results in a pro forma leverage of 2.8 times at the expected time for funding the LRO acquisition. In order to finance the acquisition, during February of this year, we amended our credit facility to increase total bank commitments from $322 million to $522 million. At the same time, we extended the maturity of our credit facility from September 2019 to February 2022. We have excellent financial partners and they move swiftly during the process demonstrating confidence in our future business prospects and our recent acquisitions. Momentarily, I'll provide more detail related to our view of debt leverage and liquidity. Cash flow from operations during Q4 2016 was nearly $30 million. This was before considering $1.4 million benefit from tenant improvement reimbursements related to our new headquarter move. Capital expenditures for the quarter were $14.2 million. The primary uses of capital were build-out of our new headquarters and related furniture and equipment. Total CapEx does not reflect $1.4 million of tenant improvement reimbursements received during the fourth quarter. As we enter 2016, we were expecting total capital expenditures of $80 million and a tenant improvement allowance of $19 million. We performed in line with our expectation except for $5 million of the planned capital expenditures related to our new corporate headquarters that shifted into 2017. Excluding the new investment in our new headquarters and the associated data center moves, capital expenditures represented 4.4% of revenue below our target of 5%. Capital expenditures for 2017 are expected to be in line with our target of 5% of revenue excluding the capital expenditures related to our headquarters that shifted from 2016 into the current year of 2017. Now with respect to debt levels, and the associated leverage. We are comfortable with leverage that initially reaches three times and potentially higher depending on the circumstances and the source of capital, the financial profile of RealPage affordability to repay debt and quickly lower leverage. Our free cash flow should continue to grow significantly in 2017 and beyond due to the high retention and recurring nature of our revenue, our ability to expand margin and to grow profit at a higher rate than revenue, and our ability to reduce capital expenditures now the headquarters relocation is largely behind us. Our capital allocation strategy continues to focus on the most efficient sources of capital available to us and deploy capital across internal investments, acquisitions, and share repurchases prioritized based on the most compelling risk-adjusted returns for our shareholders. Now moving to guidance. For the first quarter of 2017, we expect non-GAAP revenue in the range of $151.3 million to $153.3 million. Adjusted EBITDA is expected to be in the range of $35.5 million to $36.5 million and non-GAAP diluted earnings per share is expected to be in the range of $0.21 to $0.22. For the full-year, our guidance anticipates nine-months of operations from LRO. We expect non-GAAP revenue in the range of $670 million to $680 million. Adjusted EBITDA is expected to be in the range of $162 million to $168 million and is reflective of certain required integration investments, and finally, non-GAAP diluted earnings per share is expected to be in the range of $0.89 to $0.94. In summary, we are very pleased with our 2016 operating results. We made significant strides towards achieving our 2020 objective of $1 billion in revenue and a 30% adjusted EBITDA margin. This execution provides us confidence as we begin to integrate and realize synergies from the recent acquisitions as well as execute against our adjusted EBITDA margin expansion objectives of 200 basis points per year. In addition, I am very proud of our teams' hard work during 2016 as well as the foundation we've built to position RealPage as the data power technology partner to the real estate industry. And now I'll open the call up for questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions]. And the first questioner is John Campbell with Stephens Inc. Please go ahead.

[John Campbell:]

Hi guys good afternoon and congrats on the deal. Hi just want to touch on the recent acquisition for a second. So Axiometrics LRO that's all going into asset optimization and that's all subscription rev; is that right?

[Steve Winn:]

Those assets will be managed in our asset optimization product family and the majority of the revenue is subscription recurring base. For Axiometrics approximately 90% of it is subscription basis and similar amount is -- that's also true for LRO.

[John Campbell:]

Okay. And then you gave as to LRO, I guess the trailing 12-months revenue contribution. Can you let us know little bit about the -- just the trends below the surface, how fast is growing, kind of margin profile lift, when it gets to little bit of RealPage goal?

[Steve Winn:]

So the LRO asset was growing kind of high-teens and it was already achieving a fairly good EBITDA margin. This is a carve out of a entity that also had another operation that provided solutions to the hospitality industry. So it had a corporate structure in place and the corporate structure will not be ongoing long-term as it’s a part of RealPage. So what the acquisition does do is afford a fairly significant margin expansion opportunity as we move in to the latter half of 2017 and certainly in 2018 and beyond. I mean it's a software, predominately software offering. They do have some professional services and they provide some pricing advisory services similar to our revenue management offering. So that those can tend to impact margin some, but think of this asset as more of a pure play software margin business.

[John Campbell:]

Okay, that's helpful. And then as far as 2017 guidance I don't know just getting too granular but can you it sounds like you're assuming nine-months of contribution from LRO. Could you may be help us out first with may be what you're expecting as far as the growth rate from LRO this year and then also if you could help us out may be size up the Axiometrics impact?

[Bryan Hill:]

Yes, so for 2017 we are factored in to our guidance $44 million of revenue and approximately $10 million of EBITDA for the 2017 acquisitions. That is a slight step back in the revenue growth rate that those acquisitions have been achieving on their own but we built some conservatism into our guidance because there is a period of time through integration that we need to make certain that we continue to achieve the same revenue growth which we expect that we can. Also the LRO acquisition brings with it 500,000 new units to RealPage that will afford us the ability to cross sell our products into those 500,000 units. Presently the LRO units achieved close to $22, $23 of revenue per unit. So that gives you an idea of the potential lift just taking those units to $51 and then potentially up to $186 per unit which is representative of our top 50 but that's just the financial. The financial incentive is to buy LRO. I mean LRO and Axiometrics fits in nicely into our data centric strategy to help owners and operators achieve higher yields on their portfolios both in the operational stage as well as in investment stage in deploying capital. So I mean our acquisitions not only need to meet our return requirements or financial requirements but the strategy component is equally and obviously more important.

[John Campbell:]

Got it. And then one last question could you just kind of back in sets back on the senior living business just what the impact was in units managed, the sequential decline and then also the revenue headwind in the quarter?

[Steve Winn:]

Yes, so we were expecting a $1 million of revenue in our original guidance of 2016 and Q4 related to our parents. And our parents also had or contributed 300,000 units to our overall unit. So obviously those units come out and that was a headwind during the quarter as well as the revenue. But we had already factor that revenue out in the guidance that we provided in November for Q4.

[Operator:]

Our next questioner today is Matt Hedberg with RBC Capital Markets. Please go ahead.

[Matt Hedberg:]

Hey guys. Thanks for the color on the contributions from the two acquisitions. Bryan you talked about the premium paid I guess Steve may be a little bit more context I guess on the premiums paid. And then I guess you mentioned that you're looking at deals on sort of a case-by-case basis but with $375 million on these past deals so just may be the appetite for more sizable deals in the next 12 months just anything around that side would be helpful as well?

[Steve Winn:]

All right. The Axio acquisition is really perfect fit with RealPage. Axiometrics is the gold standard of brand Cox. They do a better job in our view of collecting and reporting of how much rent down to the unit type is paid each month. What we did was combine that with the data that we obtained through our partnership with Real Capital Analytics. They have the absolute best sales comps data. And then the third leg of the stool is we added MPF research which is the best market research available in the multifamily industry. And then the key as you take the YieldStar real-time pricing of models and forecasts and you apply that to the data that we've acquired and what you get is a very precision based data analytics tool that we think will have a significant competitive advantage in the market. LRO by the way used Axiometrics as one of the inputs into its pricing of engine. LRO is positioning RealPage to grow the pricing of science used to drive yields in primarily the multifamily industry but we can also adapt this technology to other segments of rental housing and to offshore or overseas markets. We think that less than 10% of the units that are rental housing in the United States are currently using a scientific base to pricing engine. And so the -- this market very underpenetrated and it's right for accelerated penetration because the market is starting to soften. When we had seven years of really unbelievable growth in multifamily and we're now beginning to see supply and demand come back into equilibrium. And when this occurs, owners will start to look at a science as a way to extend the good times that they've enjoyed in the past seven years. So we think we're going to see a lot of tailwind, if you will, for asset optimization or price optimization tools and marketing tools that is our lead capture contact center of service. So that's the thought process behind LRO. It's time to get going with this opportunity and this company is a really good way to scale into it. With respect to appetite on additional acquisitions, it's hard to comment without looking at a specific deal. I think RealPage is in envious position of generating a sizable amount of cash flow. So we have the capacity to do additional deals if they are of such a importance that it makes sense. I don't think you're going to see as do more asset optimization deals. The management team is -- will be extended in the integration effort of these two acquisitions in that particular product family. So I would be shocked if we did another deal of any substance in that area. But it doesn't rule out the possibility of looking at some of the other product families where the management team is really not involved at all with the integration efforts on Axiometrics or LRO.

[Matt Hedberg:]

That's helpful. And then if I could ask a one more quick follow-up Steve I think in your prepared remarks you talked about nice sales productivity gains especially you said 20%. I'm curious with Ashley on board now how much more room is there for productivity gains as we look to 2017 and beyond I mean is that I guess relative to the gain you saw on 2016 which were fantastic?

[Steve Winn:]

Ashley is doing a great job and she has a good team under her. And I think there is a lot of opportunity to grow particularly in the multifamily area without adding lot of sales capacity. I think from institutional market which is one that is important to us we will be adding sales force there and I would be surprised we saw lot of productivity improvements in that particular market. But clearly in the mainstream multifamily we can get a lot more efficient over time that is our intention.

[Operator:]

[Operator Instructions]. And the next questioner will be Brandon Dobell from William Blair. Please go ahead.

[Brandon Dobell:]

Thanks good afternoon. May be Bryan or Steve as we think about 2017 revenue guidance excluding the acquisitions what are the trajectory on the product lines look like for example so we still leasing and marketing still hover around this kind of flat up or down, should we see resident services continue some growth in the 2020, just trying to get a better feel about how to model it that way as opposed just overall top-line.

[Bryan Hill:]

I'm sure Brandon and what I'm going to give you is more just what we -- how we view sustainable grow rate with any to the product family we typically do not provide guidance at that level. Then on a total company basis, as I mentioned, we targeted 10% to 12% organic growth for the full-year. Prop management exited 2016 with an 11% growth rate and we adjusted over time that we can continue to grow property management in that low-teens level 10% to 12%. Resident services and lot was driving resident services with the acquisition of the NWP however a significant traction within our payment processing product or renters insurance product as well as online resident product has helped drive the organic revenue growth within resident services in that 20% range. So we would expect resident services to continue in a very high-teen to low 20% level. Leasing and marketing you're right on, right now we’re still expecting that to be more flat to slightly down without a significant improvement. We do have confidence that there is opportunity for this product category to finally show some positive revenue growth that we haven't built that in. We base our more optimistic thoughts on some of the weaknesses that we're seeing within certain markets as well as the back half of the year; we experience some nice new sales bookings for the contact centers. So while we look forward and we have a good strategy currently we're still not willing to place a large bet on the leasing management solutions. And then asset optimization of course with the two acquisitions, you are now looking at a product family group with a run rate of over $100 million of revenue, it will be close to 17% of our revenue in 2017 are on-demand revenue that is and we would expect that to continue to grow in a high-teen low 20 level for organic growth that is. So I would add my look in terms of that framework and I think you will come out pretty close to the guidance that we provided for this year.

[Brandon Dobell:]

Okay. Got it, thank you. That's helpful. The CapEx commentary for 2017 at that 5% of revenues. Should we use or consider that to be 5% of total or 5% of core, just want to make sure I don't get too far often what that 5% will refer to?

[Bryan Hill:]

5% of total revenue.

[Brandon Dobell:]

Okay.

[Bryan Hill:]

But we need to add to that is the $5 million of CapEx that's from 2016 and 2017. So it's a range of $40 million to $45 million.

[Brandon Dobell:]

Got it.

[Bryan Hill:]

I think about CapEx for 2017. But in 2018 and beyond we should certainly be working within that 5% or slightly lower level of revenue, total revenue.

[Brandon Dobell:]

Got it, okay. And then final one as you think about sales force organization especially in multifamily may be some color on what kind of headcount growth we should expect this year and probably as importantly any changes to how incentive compensation structures or compensation structures in general in 2017 or as you finished out 2016 that we should be aware of trying to figure out what productivity looks like? Thanks.

[Bryan Hill:]

Yes, I mean each year we tend to increase our quotas for our sales reps and move that more in line with the expectation for bookings increase for the company in order to achieve its organic growth objectives but there is no material change to our compensation structures. From an investment perspective, we will continue to opportunistically invest in our sales force; you will see some investment in the institutional area as Steve had indicated for multifamily also within single family senior as well as vacation rental we will selectively invest. For multifamily, we feel that we probably have at least at the enterprise level the correct number of sales reps as we move into 2017, there could be some investment in the middle to lower end of the market that we thought we are in pretty good shape for the multifamily sales force.

[Operator:]

This concludes the question-and-answer session. And we will conclude today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines.