Market Overview

RealPage Reports Second Quarter 2018 Financial Results

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Exceeds Financial Expectations, Raises Full Year Guidance

RealPage,
Inc.
(NASDAQ: RP),
a leading global provider of software and data analytics to the real
estate industry, today announced financial results for the second
quarter ended June 30, 2018.

Second Quarter 2018 Financial Highlights

  • Total revenue of $216.3 million, an increase of 34% year-over-year;
  • Net income of $8.5 million, or $0.09 in net income per diluted share,
    a year-over-year increase of 36% and 13%, respectively;
  • Adjusted EBITDA of $57.1 million, an increase of 45% year-over-year;
    and
  • Non-GAAP net income of $32.3 million, or $0.37 in non-GAAP net income
    per diluted share, a year-over-year increase of 74% and 61%,
    respectively.

Comments on the News

"Second quarter financial results were strong and underscore continued
focus on our ‘North Star' strategy," said Steve Winn, Chairman and CEO
of RealPage. "We expect to continue to deliver major innovation across
all four product families. The pending acquisition of LeaseLabs, the
release of unified sign-on and user management capabilities, the release
of Kigo Hospitality, and the access to a significant amount of RealPage
market and asset level data free of charge, are all derived from an
intense focus on innovation. We expect these development initiatives,
combined with our M&A program, to drive RealPage towards, and beyond,
our 2020 revenue goal of $1 billion."

"Second quarter financial performance continued to be strong," said
Bryan Hill, CFO and Treasurer of RealPage. "Compared to the prior year
second quarter, total revenue accelerated to 34% growth and Adjusted
EBITDA margin expanded over 200 basis points. We also remain disciplined
with respect to our capital allocation strategy, allocating capital to
our pending acquisition of LeaseLabs which we believe will drive
compelling returns for shareholders over the long-term. I am proud of
the team's unwavering focus. We are raising our full-year guidance
expectations for revenue and profit growth."

2018 Financial Outlook

As part of its outlook, RealPage includes slightly more than eight
months of contribution from its ClickPay acquisition. The company
expects the acquisition of LeaseLabs to contribute revenue of
approximately $5 million and to contribute immaterially to its 2018
Adjusted EBITDA during the three month period ending December 31, 2018.
The completion of the LeaseLabs acquisition remains subject to certain
standard conditions, including the completion of regulatory review.

RealPage management expects to achieve the following results during the
third quarter ending September 30, 2018:

  • GAAP total revenue is expected to be in the range of $219.9 million to
    $221.9 million;
  • GAAP net income per diluted share is expected to be in the range of
    $0.07 to $0.09;
  • Non-GAAP total revenue is expected to be in the range of $220.0
    million to $222.0 million;
  • Adjusted EBITDA is expected to be in the range of $56.5 million to
    $58.0 million;
  • Non-GAAP net income per diluted share is expected to be in the range
    of $0.34 to $0.36;
  • Non-GAAP diluted weighted average shares outstanding are expected to
    be approximately 94.1 million.

RealPage management expects to achieve the following results during the
calendar year ending December 31, 2018:

  • GAAP total revenue is expected to be in the range of $866.4 million to
    $872.5 million;
  • GAAP net income per diluted share is expected to be in the range of
    $0.37 to $0.42;
  • Non-GAAP total revenue is expected to be in the range of $867.0
    million to $873.0 million;
  • Adjusted EBITDA is expected to be in the range of $226.0 million to
    $230.0 million;
  • Non-GAAP net income per diluted share is expected to be in the range
    of $1.44 to $1.48;
  • Non-GAAP diluted weighted average shares outstanding are expected to
    be approximately 90.1 million.

Conference Call Information; Presentation Slides

The Company will host a conference call at 5 p.m. ET today to discuss
its financial results. Participants are encouraged to listen to the
presentation via a live web broadcast and view the earnings presentation
at www.realpage.com
on the Investor Relations section. In addition, a live dial-in is
available domestically at 844-889-4333 and internationally at
412-717-9596. A replay will be available at 877-344-7529 or
412-317-0088, passcode 10122768, until August 9, 2018.

About RealPage

RealPage is a leading global provider of software and data analytics to
the real estate industry. Clients use our platform to improve operating
performance and increase capital returns. Founded in 1998 and
headquartered in Richardson, Texas, RealPage currently serves over
12,400 clients worldwide from offices in North America, Europe and Asia.
For more information about the company, visit https://www.realpage.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains "forward-looking" statements relating to
RealPage, Inc.'s strategy, goals and focus, expected, possible or
assumed future results including its financial outlook for the third
quarter ending September 30, 2018 and calendar year ending December 31,
2018, that we expect to deliver major innovation across all four product
families, that development initiatives, combined with the M&A program,
are expected to drive RealPage towards, and beyond, our 2020 revenue
goal of $1 billion, that the allocation of capital to acquire LeaseLabs
will drive compelling returns for shareholders over the long term, and
our expectations regarding the contributions to RealPage revenue and
Adjusted EBITDA by LeaseLabs during the fourth quarter of 2018. These
forward-looking statements are based on management's beliefs and
assumptions and on information currently available to management.
Forward-looking statements include all statements that are not
historical facts and may be identified by terms such as "expects,"
"believes," "plans," or similar expressions and the negatives of those
terms. Those forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results,
performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the
forward-looking statements. The company may be required to revise its
results contained herein upon finalizing its review of quarterly and
full-year results and completion of the annual audit, which could cause
or contribute to such differences. Additional factors that could cause
or contribute to such differences include, but are not limited to, the
following: (a) the possibility that general economic conditions,
including leasing velocity or uncertainty, could cause information
technology spending, particularly in the rental housing industry, to be
reduced or purchasing decisions to be delayed; (b) an increase in
insurance claims; (c) an increase in client cancellations; (d) the
inability to increase sales to existing clients and to attract new
clients; (e) RealPage's failure to integrate acquired businesses and any
recent or future acquisitions successfully or to achieve expected
synergies, including the recently completed acquisition of ClickPay and
pending acquisition of LeaseLabs; (f) the timing and success of new
product introductions by RealPage or its competitors; (g) changes in
RealPage's pricing policies or those of its competitors; (h) legal or
regulatory proceedings; (i) the inability to achieve revenue growth or
to enable margin expansion; (j) changes in RealPage's estimates with
respect to its long-term corporate tax rate or any other impact from the
recently enacted Tax Cuts and Jobs Act; and (k) such other risks and
uncertainties described more fully in documents filed with or furnished
to the Securities and Exchange Commission ("SEC") by RealPage, including
its Annual Report on Form 10-K previously filed with the SEC on March 1,
2018 and its Quarterly Report on Form 10-Q previously filed with the SEC
on May 10, 2018. All information provided in this release is as of the
date hereof and RealPage undertakes no duty to update this information
except as required by law.

Explanation of Non-GAAP Financial Measures

The company reports its financial results in accordance with accounting
principles generally accepted in the United States of America, or GAAP.
However, the company believes that, in order to properly understand its
short-term and long-term financial, operational and strategic trends, it
may be helpful for investors to exclude certain non-cash or
non-recurring items when used as a supplement to financial performance
measures in accordance with GAAP. These non-cash or non-recurring items
result from facts and circumstances that vary in both frequency and
impact on continuing operations. The company also uses results of
operations excluding such items to evaluate the operating performance of
RealPage and compare it against prior periods, make operating decisions,
determine executive compensation, and serve as a basis for long-term
strategic planning. These non-GAAP financial measures provide the
company with additional means to understand and evaluate the operating
results and trends in its ongoing business by eliminating certain
non-cash expenses and other items that RealPage believes might otherwise
make comparisons of its ongoing business with prior periods more
difficult, obscure trends in ongoing operations, reduce management's
ability to make useful forecasts, or obscure the ability to evaluate the
effectiveness of certain business strategies and management incentive
structures. In addition, the company also believes that investors and
financial analysts find this information to be helpful in analyzing the
company's financial and operational performance and comparing this
performance to the company's peers and competitors.

The company defines "Non-GAAP Total Revenue" as total revenue plus
acquisition-related and other deferred revenue adjustments. The company
believes it is useful to include deferred revenue written down for GAAP
purposes under purchase accounting rules and revenue deferred due to a
lack of historical experience determining the settlement of the
contractual obligation in order to appropriately measure the underlying
performance of its business operations in the period of activity and
associated expense. Further, the company believes this measure is useful
to investors as a way to evaluate the company's ongoing performance
because it provides a more accurate depiction of on demand revenue
arising from our strategic acquisitions.

The company defines "Adjusted Gross Profit" as gross profit, plus (1)
acquisition-related and other deferred revenue adjustments, (2)
depreciation, (3) amortization of intangible assets, and (4) stock-based
expense. The company believes that investors and financial analysts find
these non-GAAP financial measures to be useful in analyzing the
company's financial and operational performance, comparing this
performance to the company's peers and competitors, and understanding
the company's ability to generate income from ongoing business
operations.

The company defines "Adjusted EBITDA" as net income (loss), plus (1)
acquisition-related and other deferred revenue adjustments, (2)
depreciation, asset impairment, and the loss on disposal of assets, (3)
amortization of intangible assets, (4) acquisition-related expense, (5)
costs related to the Hart-Scott-Rodino review process, (6) interest
expense, net, (7) income tax (benefit) expense, and (8) stock-based
expense. The company believes that investors and financial analysts find
these non-GAAP financial measures to be useful in analyzing the
company's financial and operational performance, comparing this
performance to the company's peers and competitors, and understanding
the company's ability to generate income from ongoing business
operations.

The company defines "Non-GAAP Product Development Expense" as product
development expense, excluding stock-based expense. The company believes
that investors and financial analysts find these non-GAAP financial
measures to be useful in analyzing the company's financial and
operational performance, comparing this performance to the company's
peers and competitors, and understanding the company's ongoing
expenditures related to product innovation.

The company defines "Non-GAAP Sales and Marketing Expense" as sales and
marketing expense, excluding (1) amortization of intangible assets, and
(2) stock-based expense. The company believes that investors and
financial analysts find these non-GAAP financial measures to be useful
in analyzing the company's financial and operational performance,
comparing this performance to the company's peers and competitors, and
understanding the company's ongoing expenditures related to its sales
and marketing strategies.

The company defines "Non-GAAP General and Administrative Expense" as
general and administrative expense, excluding (1) loss on disposal of
assets, (2) acquisition-related expense, (3) costs related to the
Hart-Scott-Rodino review process, and (4) stock-based expense. The
company believes that investors and financial analysts find these
non-GAAP financial measures to be useful in analyzing the company's
financial and operational performance, comparing this performance to the
company's peers and competitors, and understanding the company's
underlying expense structure to support corporate activities and
processes.

The company defines "Non-GAAP Operating Expense" as operating expense,
excluding (1) asset impairment and loss on disposal of assets, (2)
amortization of intangible assets, (3) acquisition-related expense, (4)
costs related to the Hart-Scott-Rodino review process, and (5)
stock-based expense. The company believes that investors and financial
analysts find these non-GAAP financial measures to be useful in
analyzing the company's financial and operational performance, comparing
this performance to the company's peers and competitors, and
understanding the company's underlying expense structure to support
ongoing operations.

The company defines "Non-GAAP Operating Income" as operating income,
plus (1) acquisition-related and other deferred revenue adjustments, (2)
asset impairment and loss on disposal of assets, (3) amortization of
intangible assets, (4) acquisition-related expense, (5) costs related to
the Hart-Scott-Rodino review process, and (6) stock-based expense. The
company believes that investors and financial analysts find these
non-GAAP financial measures to be useful in analyzing the company's
financial and operational performance, comparing this performance to the
company's peers and competitors, and understanding the company's ability
to generate income from ongoing business operations.

The company defines "Non-GAAP Net Income" as net income (loss), plus (1)
income tax (benefit) expense, (2) acquisition-related and other deferred
revenue adjustments, (3) asset impairment and loss on disposal of
assets, (4) amortization of intangible assets, (5) acquisition-related
expense, (6) costs related to the Hart-Scott-Rodino review process, (7)
amortization of convertible note discount, (8) stock-based expense, and
(9) provision for income tax expense based on an assumed rate in order
to approximate the company's long-term effective corporate tax rate; and
the company defines "Non-GAAP Net Income per Diluted Share" as Non-GAAP
Net Income divided by Non-GAAP diluted weighted average shares
outstanding. The company believes that investors and financial analysts
find these non-GAAP financial measures to be useful in analyzing the
company's financial and operational performance, comparing this
performance to the company's peers and competitors, and understanding
the company's ability to generate income from ongoing business
operations.

The company defines "Non-GAAP On Demand Revenue" as total on demand
revenue plus acquisition-related and other deferred revenue adjustments.
The company believes it is useful to include deferred revenue written
down for GAAP purposes under purchase accounting rules and revenue
deferred due to a lack of historical experience determining the
settlement of the contractual obligation in order to appropriately
measure the underlying performance of the company's business operations
in the period of activity and associated expense. Further, the company
believes that investors and financial analysts find this measure to be
useful in evaluating the company's ongoing performance because it
provides a more accurate depiction of on demand revenue arising from our
strategic acquisitions.

The company defines "Ending On Demand Units" as the number of rental
housing units managed by our clients with one or more of our on demand
software solutions at the end of the period. We use ending on demand
units to measure the success of our strategy of increasing the number of
rental housing units managed with our on demand software solutions.
Property unit counts are provided to us by our customers as new sales
orders are processed. Property unit counts may be adjusted periodically
as information related to our clients' properties is updated or
supplemented, which could result in adjustments to the number of units
previously reported.

The company defines "Average On Demand Units" as the average of the
beginning and ending on demand units for each quarter in the period
presented. The company's management monitors this metric to measure its
success in increasing the number of on demand software solutions
utilized by our clients to manage their rental housing units, our
overall revenue, and profitability.

The company defines "ACV," or Annual Client Value, as management's
estimate of the annual value of the company's on demand revenue
contracts. The company's management monitors this metric to measure its
success in increasing the number of on demand units, and the amount of
software solutions utilized by its clients to manage their rental
housing units.

The company defines "RPU," or Revenue Per Unit, as ACV divided by ending
on demand units. The company monitors this metric to measure its success
in increasing the penetration of on demand software solutions utilized
by its clients to manage their rental housing units.

The company excludes or adjusts each of the items identified below from
the applicable non-GAAP financial measure referenced above for the
reasons set forth with respect to each excluded item:

  • Non-GAAP tax rate – In 2017, the company used a 40.0%
    tax rate in order to approximate the company's long-term effective
    corporate tax rate. The GAAP tax rate includes certain tax items which
    may include, but are not limited to: income tax expenses or benefits
    that are not related to ongoing business operations in the current
    year; unusual or infrequently occurring items; benefits from stock
    compensation deductions for tax purposes that exceed the stock
    compensation expense recognized for GAAP; tax adjustments associated
    with fluctuations in foreign currency re-measurement; certain changes
    in estimates of tax matters related to prior fiscal years; certain
    changes in the realizability of deferred tax assets and liabilities;
    and changes in tax law. For 2018 guidance purposes, the company uses a
    Non-GAAP tax rate of approximately 26%, as a result of the recently
    enacted Tax Cuts and Jobs Act legislation, to approximate the
    company's long-term effective corporate tax rate. We believe excluding
    these items assists investors and analysts in understanding the tax
    provision and the effective tax rate related to ongoing operations.
  • Acquisition-related and other deferred revenue – These
    items are included to reflect deferred revenue written down for GAAP
    purposes under purchase accounting rules and revenue deferred due to a
    lack of historical experience determining the settlement of the
    contractual obligation in order to appropriately measure the
    underlying performance of the company's business operations in the
    period of activity and associated expense.
  • Asset impairment and loss on disposal of assets – These
    items comprise gains (losses) on the disposal and impairment of
    long-lived assets, which are not reflective of the company's ongoing
    operations. We believe exclusion of these items facilitates a more
    accurate comparison of the company's results of operations between
    periods.
  • Amortization of intangible assets – These items are
    amortized over their estimated useful lives and generally cannot be
    changed or influenced by the company after acquisition. Accordingly,
    these items are not considered by the company in making operating
    decisions. The company does not believe such charges accurately
    reflect the performance of its ongoing operations for the period in
    which such charges are incurred.
  • Acquisition-related expense – These items consist of
    direct costs incurred in our business acquisition transactions and the
    impact of changes in the fair value of acquisition-related contingent
    consideration obligations. We believe exclusion of these items
    facilitates a more accurate comparison of the results of the company's
    ongoing operations across periods and eliminates volatility related to
    changes in the fair value of acquisition-related contingent
    consideration obligations.
  • Costs related to the Hart-Scott-Rodino review process –
    This item relates to the company's Hart-Scott-Rodino Antitrust
    Improvements Act review process regarding the recently completed
    acquisitions of On-Site and LRO. The company believes that these
    significant legal costs are not reflective of its ongoing operations.
  • Amortization of the convertible note discount – This
    items consists of non-cash interest expense related to the
    amortization of the discount recognized on the convertible notes
    issued in May 2017. Management excludes this item as it is not
    indicative of the company's ongoing operating performance.
  • Stock-based expense – This item is excluded because
    these are non-cash expenditures that the company does not consider
    part of ongoing operating results when assessing the performance of
    our business, and also because the total amount of the expenditure is
    partially outside of its control because it is based on factors such
    as stock price, volatility, and interest rates, which may be unrelated
    to the company's performance during the period in which the expenses
    are incurred.

 
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
       
 
June 30, December 31,
2018 2017
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 373,174 $ 69,343
Restricted cash 102,518 96,002

Accounts receivable, less allowance for doubtful accounts of
$8,442 and $3,951 at June 30, 2018 and December 31, 2017,
respectively

112,484 124,505
Prepaid expenses 15,493 12,107
Other current assets   15,812     6,622  
Total current assets 619,481 308,579
Property, equipment, and software, net 145,340 148,428
Goodwill 918,785 751,052
Identified intangible assets, net 276,983 252,337
Deferred tax assets, net 42,607 44,887
Other assets   20,710     11,010  
Total assets $ 2,023,906   $ 1,516,293  
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 28,394 $ 26,733
Accrued expenses and other current liabilities 97,484 79,379
Current portion of deferred revenue 111,238 116,622
Current portion of term loans 16,133 14,116
Convertible notes, net 286,908 -
Customer deposits held in restricted accounts   102,512     96,057  
Total current liabilities 642,669 332,907
Deferred revenue 5,181 5,538
Revolving facility - 50,000
Term loans, net 295,382 303,261
Convertible notes, net - 281,199
Other long-term liabilities   41,299     41,513  
Total liabilities 984,531 1,014,418
Stockholders' equity:

Common stock, $0.001 par value: 250,000,000 and 125,000,000 shares
authorized, 96,485,983 and 87,153,085 shares issued and 93,959,957
and 83,180,401 shares outstanding at June 30, 2018 and December
31, 2017, respectively

96 87
Additional paid-in capital 1,159,831 637,851
Treasury stock, at cost: 2,526,026 and 3,972,684 shares at June 30,
2018 and December 31, 2017, respectively
(67,360 ) (61,260 )
Accumulated deficit (53,445 ) (75,046 )
Accumulated other comprehensive income   253     243  
Total stockholders' equity   1,039,375     501,875  
Total liabilities and stockholders' equity $ 2,023,906   $ 1,516,293  
 

 
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
               
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenue:
On demand $ 206,945 $ 154,727 $ 400,245 $ 300,940
Professional and other   9,307     6,579     17,308     13,285  
Total revenue 216,252 161,306 417,553 314,225
Cost of revenue(1)   85,741     67,544     162,401     130,586  
Gross profit   130,511     93,762     255,152     183,639  
Operating expenses:
Product development(1) 30,771 21,290 59,811 41,677
Sales and marketing(1) 54,488 39,235 104,729 74,382
General and administrative(1)   28,444     27,370     55,534     51,621  
Total operating expenses   113,703     87,895     220,074     167,680  
Operating income 16,808 5,867 35,078 15,959
Interest expense and other, net   (8,518 )   (2,786 )   (16,188 )   (3,872 )
Income before income taxes   8,290     3,081     18,890     12,087  
Income tax benefit   (189 )   (3,132 )   (490 )   (2,321 )
Net income $ 8,479   $ 6,213   $ 19,380   $ 14,408  
 
Net income per share attributable to common stockholders:
Basic $ 0.10 $ 0.08 $ 0.23 $ 0.18
Diluted $ 0.09 $ 0.08 $ 0.22 $ 0.18
Weighted average shares used in computing net income per share
attributable to common stockholders:
Basic 85,124 79,018 83,156 78,642
Diluted 90,005 81,925 87,332 81,644
                         
 
(1) Includes stock-based expense as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Cost of revenue $ 1,168 $ 1,050 $ 2,003 $ 1,903
Product development 2,645 2,454 4,808 4,333
Sales and marketing 4,470 4,266 8,011 7,394
General and administrative   5,412     6,106     9,191     10,338  
$ 13,695   $ 13,876   $ 24,013   $ 23,968  
 

 
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
               
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Cash flows from operating activities:
Net income $ 8,479 $ 6,213 $ 19,380 $ 14,408
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 25,129 15,093 48,389 29,533
Amortization of debt discount and issuance costs 3,109 1,335 6,121 1,424
Deferred taxes (1,819 ) (3,331 ) (2,973 ) (3,088 )
Stock-based expense 13,695 13,876 24,013 23,968
Loss on disposal and impairment of other long-lived assets 156 63 1,098 87
Acquisition-related consideration 722 903 1,124 1,024
Customer deposits (11,135 ) 2,666 5,142 15,389
Other changes in assets and liabilities, net of assets acquired and
liabilities assumed in business combinations
  (6,887 )   11,851     (74 )   12,907  
Net cash provided by operating activities   31,449     48,669     102,220     95,652  
 
Cash flows from investing activities:
Purchases of property, equipment, and software (9,833 ) (17,204 ) (22,493 ) (27,129 )
Acquisition of businesses, net of cash and restricted cash acquired (137,475 ) (57,138 ) (137,475 ) (123,241 )
Purchase of other investment   -     -     (1,800 )   -  
Net cash used in investing activities   (147,308 )   (74,342 )   (161,768 )   (150,370 )
 
Cash flows from financing activities:
Payments on and proceeds from debt, net (54,182 ) 303,681 (57,399 ) 302,292
Payments of acquisition-related consideration (6,595 ) (724 ) (7,371 ) (7,185 )
Proceeds from public offering, net of underwriters' discount and
offering costs
441,799 - 441,799 -
Proceeds from exercise of stock options 2,701 5,224 7,739 13,151
Purchase of treasury stock related to stock-based compensation   (6,310 )   (7,432 )   (14,760 )   (11,008 )
Net cash provided by financing activities   377,413     300,749     370,008     297,250  
Net increase in cash, cash equivalents and restricted cash 261,554 275,076 310,460 242,532
Effect of exchange rate on cash 14 48 (113 ) (2 )
 
Cash, cash equivalents and restricted cash:
Beginning of period   214,124     155,946     165,345     188,540  
End of period $ 475,692   $ 431,070   $ 475,692   $ 431,070  
 

 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO
COMPARABLE GAAP MEASURES
(unaudited, in thousands, except per share data)
               

The following is a reconciliation of the non-GAAP financial
measures used by RealPage to describe its financial results
determined in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). An explanation
of these measures is also included under the heading "Explanation
of Non-GAAP Financial Measures."

 

While the company believes that these non-GAAP financial measures
provide useful supplemental information to investors regarding the
underlying performance of our business operations, investors are
reminded to consider these non-GAAP measures in addition to, and
not as a substitute for, financial performance measures prepared
in accordance with GAAP. In addition, it should be noted that
these non-GAAP financial measures may be different from non-GAAP
measures used by other companies, and the company may utilize
other measures to illustrate performance in the future. Non-GAAP
measures have limitations in that they do not reflect all of the
amounts associated with our results of operations as determined in
accordance with GAAP.

 

Non-GAAP Total Revenue

Set forth below is a presentation of the company's "Non-GAAP total
revenue." Please reference the "Explanation of Non-GAAP Financial
Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenue (GAAP) $ 216,252 $ 161,306 $ 417,553 $ 314,225
Acquisition-related and other deferred revenue   103     945     416     1,650  
Non-GAAP total revenue $ 216,355   $ 162,251   $ 417,969   $ 315,875  
 

Adjusted Gross Profit

Set forth below is a presentation of the company's "Adjusted Gross
Profit." Please reference the "Explanation of Non-GAAP Financial
Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Gross profit (GAAP) $ 130,511 $ 93,762 $ 255,152 $ 183,639
Acquisition-related and other deferred revenue 103 945 416 1,650
Depreciation 3,099 3,063 6,033 5,946
Amortization of intangible assets 3,799 3,691 7,622 7,380
Stock-based expense   1,168     1,050     2,003     1,903  
Adjusted gross profit $ 138,680   $ 102,511   $ 271,226   $ 200,518  
 

Adjusted EBITDA

Set forth below is a presentation of the company's "Adjusted
EBITDA." Please reference the "Explanation of Non-GAAP Financial
Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Net income (GAAP) $ 8,479 $ 6,213 $ 19,380 $ 14,408
Acquisition-related and other deferred revenue 103 945 416 1,650
Depreciation, asset impairment, and loss on disposal of assets 7,662 6,929 15,480 13,604
Amortization of intangible assets 17,623 8,227 34,007 16,016
Acquisition-related expense 1,168 1,354 2,175 2,564
Costs related to the Hart-Scott-Rodino review process - 2,228 - 2,709
Interest expense, net 8,584 2,804 16,305 3,924
Income tax benefit (189 ) (3,132 ) (490 ) (2,321 )
Stock-based expense   13,695     13,876     24,013     23,968  
Adjusted EBITDA $ 57,125   $ 39,444   $ 111,286   $ 76,522  
 

Non-GAAP Product Development Expense

Set forth below is a presentation of the company's "Non-GAAP Product
Development Expense." Please reference the "Explanation of Non-GAAP
Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Product development expense (GAAP) $ 30,771 $ 21,290 $ 59,811 $ 41,677
Less: Stock-based expense   2,645     2,454     4,808     4,333  
Non-GAAP product development expense $ 28,126   $ 18,836   $ 55,003   $ 37,344  
 

               

Non-GAAP Sales and Marketing Expense

Set forth below is a presentation of the company's "Non-GAAP Sales
and Marketing Expense." Please reference the "Explanation of
Non-GAAP Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Sales and marketing expense (GAAP) $ 54,488 $ 39,235 $ 104,729 $ 74,382
Less: Amortization of intangible assets 13,824 4,536 26,385 8,636
Stock-based expense   4,470     4,266     8,011     7,394  
Non-GAAP sales and marketing expense $ 36,194   $ 30,433   $ 70,333   $ 58,352  
 

Non-GAAP General and Administrative
Expense

Set forth below is a presentation of the company's "Non-GAAP General
and Administrative Expense." Please reference the "Explanation of
Non-GAAP Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
General and administrative expense (GAAP) $ 28,444 $ 27,370 $ 55,534 $ 51,621
Less: Loss on disposal of assets 156 63 1,098 87
Acquisition-related expense 1,168 1,354 2,175 2,564
Costs related to the Hart-Scott-Rodino review process - 2,228 - 2,709
Stock-based expense   5,412     6,106     9,191     10,338  
Non-GAAP general and administrative expense $ 21,708   $ 17,619   $ 43,070   $ 35,923  
 

Non-GAAP Operating Expense

Set forth below is a presentation of the company's "Non-GAAP
Operating Expense." Please reference the "Explanation of Non-GAAP
Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017

Operating expense (GAAP)

$ 113,703 $ 87,895 $ 220,074 $ 167,680
Less: Asset impairment and loss on disposal of assets 156 63 1,098 87
Amortization of intangible assets 13,824 4,536 26,385 8,636
Acquisition-related expense 1,168 1,354 2,175 2,564
Costs related to the Hart-Scott-Rodino review process - 2,228 - 2,709
Stock-based expense   12,527     12,826     22,010     22,065  
Non-GAAP operating expense $ 86,028   $ 66,888   $ 168,406   $ 131,619  
 
 
 

Non-GAAP Operating Income

Set forth below is a presentation of the company's "Non-GAAP
Operating Income." Please reference the "Explanation of Non-GAAP
Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Operating income (GAAP) $ 16,808 $ 5,867 $ 35,078 $ 15,959
Acquisition-related and other deferred revenue 103 945 416 1,650
Asset impairment and loss on disposal of assets 156 63 1,098 87
Amortization of intangible assets 17,623 8,227 34,007 16,016
Acquisition-related expense 1,168 1,354 2,175 2,564
Costs related to the Hart-Scott-Rodino review process - 2,228 - 2,709
Stock-based expense   13,695     13,876     24,013     23,968  
Non-GAAP operating income $ 49,553   $ 32,560   $ 96,787   $ 62,953  
 

Non-GAAP Net Income

Set forth below is a presentation of the company's "Non-GAAP Net
Income" and "Non-GAAP Net Income per Diluted Share." Please
reference the "Explanation of Non-GAAP Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Net income (GAAP) $ 8,479 $ 6,213 $ 19,380 $ 14,408
Income tax benefit   (189 )   (3,132 )   (490 )   (2,321 )
Income before income taxes 8,290 3,081 18,890 12,087
 
Acquisition-related and other deferred revenue 103 945 416 1,650
Asset impairment and loss on disposal of assets 156 63 1,098 87
Amortization of intangible assets 17,623 8,227 34,007 16,016
Acquisition-related expense 1,168 1,354 2,175 2,564
Costs related to the Hart-Scott-Rodino review process - 2,228 - 2,709
Amortization of convertible note discount 2,562 1,052 5,086 1,052
Stock-based expense   13,695     13,876     24,013     23,968  
Non-GAAP income before income taxes 43,597 30,826 85,685 60,133
Assumed rate for income tax expense (1) 26.0 % 40.0 % 26.0 % 40.0 %
Assumed provision for non-GAAP income tax expense   11,335     12,330     22,278     24,053  
Non-GAAP net income $ 32,262   $ 18,496   $ 63,407   $ 36,080  
 
Net income per diluted share $ 0.09 $ 0.08 $ 0.22 $ 0.18
Non-GAAP net income per diluted share $ 0.37 $ 0.23 $ 0.74 $ 0.44
 
Weighted average outstanding shares - basic 85,124 79,018 83,156 78,642
Non-GAAP adjusted diluted weighted average shares outstanding:
Weighted average outstanding shares - diluted 90,005 81,925 87,332 81,644
Dilution offset from convertible note hedge transactions   (2,116 )   -     (1,720 )   -  
Non-GAAP diluted weighted average shares outstanding (2)   87,889     81,925     85,612     81,644  
 

               

Non-GAAP On Demand Revenue

Set forth below is a presentation of the company's "Non-GAAP On
Demand Revenue." Please reference the "Explanation of Non-GAAP
Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
On demand revenue (GAAP) $ 206,945 $ 154,727 $ 400,245 $ 300,940
Acquisition-related and other deferred revenue   103     945     416     1,650  
Non-GAAP on demand revenue $ 207,048   $ 155,672   $ 400,661   $ 302,590  
 
 
 

Ending On Demand Units, Average On Demand
Units, RPU, and ACV

Set forth below is a presentation of the company's "Ending On Demand
Units," "Average On Demand Units," "ACV," and "RPU." Please
reference the "Explanation of Non-GAAP Financial Measures" section.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Ending on demand units 15,531 11,485 15,531 11,485
Average on demand units 14,352 11,298 13,720 11,174
 
ACV $ 837,897 $ 649,017
RPU $ 53.95 $ 56.51
 

Non-GAAP Total Revenue Guidance

Set forth below is a presentation of the company's "Non-GAAP total
revenue" guidance for the three months ending September 30, 2018,
and the twelve months ending December 31, 2018. Please reference the
"Explanation of Non-GAAP Financial Measures" section.

Guidance Range for the Three Months
Ending

Guidance Range for the Twelve Months
Ending

September 30, 2018 December 31, 2018
Low (3) High (3) Low (3) High (3)
Revenue (GAAP) $ 219,870 $ 221,920 $ 866,350 $ 872,450
Acquisition-related and other deferred revenue   130     80     650     550  
Non-GAAP total revenue $ 220,000   $ 222,000   $ 867,000   $ 873,000  
 

Non-GAAP Net Income Guidance

Set forth below is a presentation of the company's "Non-GAAP net
income" and "Non-GAAP net income per diluted share" guidance for the
three months ending September 30, 2018, and the twelve months ending
December 31, 2018. Please reference the "Explanation of Non-GAAP
Financial Measures" section.

Guidance Range for the Three Months
Ending

Guidance Range for the Twelve Months
Ending

September 30, 2018 December 31, 2018
Low (3) High (3) Low (3) High (3)
Non-GAAP net income:
Net income (GAAP) $ 6,920 $ 8,760 $ 34,245 $ 38,505
Income tax expense   1,790     2,800     2,980     5,320  
Income before income taxes 8,710 11,560 37,225 43,825
 
Acquisition-related and other deferred revenue 130 80 650 550
Asset impairment and loss on disposal of assets - - 1,100 1,100
Amortization of intangible assets 17,660 17,460 70,200 69,800
Acquisition-related expense 500 200 2,975 2,475
Amortization of convertible note discount 2,600 2,600 10,300 10,300
Stock-based expense   14,200     14,000     52,450     52,050  
Non-GAAP income before income taxes 43,800 45,900 174,900 180,100
Expected effective tax rate (1) 26.0 % 26.0 % 26.0 % 26.0 %
Assumed provision for income tax expense   11,388     11,934     45,474     46,826  
Non-GAAP net income $ 32,412   $ 33,966   $ 129,426   $ 133,274  
 
Net income per diluted share $ 0.07 $ 0.09 $ 0.37 $ 0.42
Non-GAAP net income per diluted share $ 0.34 $ 0.36 $ 1.44 $ 1.48
 
Non-GAAP adjusted diluted weighted average shares outstanding:
Weighted average outstanding shares - diluted 96,575 96,575 92,265 92,265
Dilution offset from convertible note hedge transactions   (2,475 )   (2,475 )   (2,165 )   (2,165 )
Non-GAAP diluted weighted average shares outstanding (2)   94,100     94,100     90,100     90,100  
 

Adjusted EBITDA Guidance

               
Set forth below is a presentation of the company's "Adjusted EBITDA"
guidance for the three months ending September 30, 2018, and the
twelve months ending December 31, 2018. Please reference the
"Explanation of Non-GAAP Financial Measures" section.
 

Guidance Range for the
Three Months Ending

Guidance Range for the
Twelve Months Ending

September 30, 2018 December 31, 2018
Low (3) High (3) Low (3) High (3)
Adjusted EBITDA:
Net income (GAAP) $ 6,920 $ 8,760 $ 34,245 $ 38,505
Acquisition-related and other deferred revenue 130 80 650 550
Depreciation, asset impairment, and loss on disposal of assets 7,700 7,500 31,100 30,700
Amortization of intangible assets 17,660 17,460 70,200 69,800
Acquisition-related expense 500 200 2,975 2,475
Interest expense, net 7,600 7,200 31,400 30,600
Income tax expense 1,790 2,800 2,980 5,320
Stock-based expense   14,200   14,000   52,450   52,050
Adjusted EBITDA $ 56,500 $ 58,000 $ 226,000 $ 230,000
                             
 
(1) A 26.0% tax rate is assumed in order to approximate the Company's
long-term effective corporate tax rate. Please reference the
"Explanation of Non-GAAP Financial Measures" section.
 
(2) It is the current intent of the Company to settle conversions of the
Convertible Notes through combination settlement, which involves
repayment of the principal portion in cash and any excess of the
conversion value over the principal amount in shares of our common
stock. We exclude these shares that are issuable upon conversions of
our convertible notes because we expect that the dilution from such
shares will be offset by the convertible note hedge transactions
entered into in May 2017 in connection with the issuance of the
convertible notes.
 
(3) Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward-looking statements. The company may be required to
revise its results upon finalizing its review of quarterly and full
year results, which could cause or contribute to such differences.
All information provided in this release is as of the date hereof
and RealPage, Inc. undertakes no duty to update this information
except as required by law. See additional discussion under
"Cautionary Statement Regarding Forward-Looking Statements" above.

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