Realpage

RealPage is a leading provider of on-demand software solutions for the rental housing industry. RealPage was founded in 1998 with the acquisition of Rent Roll, Inc. Steve Winn is Chairman of the Board & Chief Executive Officer of RealPage Inc – he owns approximately 32,1% of the shares (looks like he is selling shares (link).

RealPage’s customers include Real Estate Investment Trusts (REITS), leading property management companies, fee managers, regionally based owner operators and service providers. Their customers currently include nine of the ten largest multi-family property management companies in the United States. Principally, all of their revenue is earned in the United States so the company has a dependence on US-housing market.

The Stock is now selling for 21,96 USD (Nasdaq)

What they do (short version):

We offer different versions of our platform for different types of properties. For example, our platform supports the specific and distinct requirements of:
• conventional single family properties (four units or less);
• conventional multifamily properties (five or more units);
• affordable Housing and Urban Development, or HUD, properties;
• affordable tax credit properties;

I think they have a sticky business. When a REIT or property management once have set up everything, I guess switching costs are very high in comparison to the savings that a competitors software may offer.

Remember: Realpage is the leading provider so a lot of people should know how their software works, this is a strong argument to stay with them/switch to them (think of AutoCAD or AdobePhotoshop)

 

Their Client Structure over time:

below 5000 units

 

Performance:

This is their performance so far. Funny thing is that their company slogan is “outperform”

Performance sucks

 

What I don’t like is that they adjust Stock-based compensation:

NonGaap

 

Some Notes (Annual report 2015)

Despite these innovation investments across the platform, we expect to deliver margin expansion.
 To address their complex and evolving requirements, many rental housing property owners and vacation property managers have historically implemented myriad single point solutions, general purpose applications such as Microsoft Excel and/or internally developed solutions to manage their properties.
 Operating costs. Our solutions help our customers reduce costs by streamlining and automating many ongoing property management functions, centralizing and controlling purchasing by on-site personnel and transferring costs from the site to more efficient centrally managed operations.
 During 2015 and 2014, the Company repurchased 1,798,199 and 966,595 shares, respectively, under the share repurchase program. These shares were repurchased at a weighted average cost of $19.51 and $16.06 per share and a total cost of $35.1 million and $15.5 million, respectively.
Page 39 selected finance data Annual Report 2015
income
 I think that sales and marketing expenses of course will grow in the future – but maybe when they sold their solutions to every landlord and REIT-Company they can lean back and stop marketing their products? Maybe a buyer of the whole company could significantly lower cost for Product development and General administrative?

There is an impairment. If that wouldn’t be the case, they would have made ~$10 mn profit in 2015. I have to find out what this is about.

 

Some Fun with numbers:

Note: Evolving from the financial crisis 2009 (rock bottom) I think the US real estate / rental market  has done very well in the time from 2011 till 2015 (little defaults). That should be displayed in the revenue of RP. I guess the revenue growth in that time was above average and will not continue to be that good. I think the revenue growth assumed by me is maybe to aggressive.

RP_Model_Norm

Let’s create a Buy-Out-Scenario: Let’s assume the buyer already have a good R&D Team so he could cut some basic R&D costs* and some of the general and administrative costs. Also they could start to integrate the marketing unit and use the marketing channel of Realpage to sell own products.

(*developing some basic interface technic they already offer or use at other services)

RP_Model_BuyOut

Bam! EPS grew from 1.15 $ to 2.91 $ by cutting costs (extremely). That is the reason why we see such high prices in IT M&A – with a little bit fantasy and synergies a high price could be justified. Whether this is helpful or not, this is a fun exercise to do.

 

 

Bottom Line:

I like the business of Real Page but I am not interested in buying the stock. The company is only interesting in some extreme scenarios to me (like the Buy Out Case). I don’t like their use of adjusted numbers (refer to their Corporate Culture).

 

Disclaimer: The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always please do your own research!

 

 

 

Links/additional Material

http://investor.realpage.com/

http://investor.realpage.com/~/media/Files/R/Real-Page-IR/documents/annual-reports/2015-annual-report.pdf

http://investor.realpage.com/news-and-events/news-releases/2016/05-04-2016-211132650

From the Q1 2016 report:

  • Q1’16 total GAAP revenue of $128.4 million, representing 16 percent year-over-year growth
  • Q1’16 adjusted EBITDA of $27.5 million, representing 37 percent year-over-year growth
  • Q1’16 non-GAAP net income per diluted share of $0.17, representing 55 percent year-over-year growth

(Remember: from the 15annual Ebitda +31% CFFO +37%)

The US rental market

Reversing the long uptrend in homeownership, American households have increasingly turned to the rental market for their housing. From 31 percent in 2004, the renter share of all US households climbed to 35 percent in 2012, bringing the total number to 43 million by early 2013
On the other hand – when you are doing well you are buying a house, when you don’t you have to rent something. Sadly the trend that americans are drowning in debt when they finish college … well I guess it helps the US rental market.
Advertisements

2 thoughts on “Realpage

  1. Looks interesting. One good point you didn’t mention is that they are cashflow positive all the time. FCF almost doubled last year from 32m to 63m – if you don’t subtract their aquisition expenses for unorganic growth. In case they can go on with their growth, it could become a good investment. But right now I wouldn’t invest either. Too much optimism is required. When they’re not really profitable in good times I don’t wanna know how it looks in bad times…

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s