RealPage Reports Second Quarter 2020 Financial Results
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, 2020.
Second Quarter 2020 Financial Highlights
GAAP total revenue of $285.6 million, an increase of 17% year-over-year; Net income of $11.3 million, or $0.11 in net income per diluted share, a year-over-year decrease of 25% and 31%, respectively; Adjusted EBITDA of $79.9 million, an increase of 17% year-over-year; and, Non-GAAP net income of $47.4 million, or $0.49 in non-GAAP net income per diluted share, a year-over-year increase of 19% and 14%, respectively.Comments on the News
“Second quarter financial performance was better than expected with total revenue growing 17% to $286 million, and Adjusted EBITDA growing 17% to nearly $80 million – both compared to last year. Numbers were exceptionally strong relative to our guidance because the impact of COVID-19 was not as impactful as we feared and there is surging demand for solutions that facilitate virtual leasing and living offered by RealPage,” said Steve Winn, Chairman and CEO of RealPage.
“We are raising the mid-point of our full year revenue growth outlook by $10.0 million and our Adjusted EBITDA margin guidance by over 50 basis points,” said Tom Ernst, CFO and Treasurer of RealPage. “Our investment in product development and sales and marketing will remain at elevated levels to capitalize on the changing dynamics of the way renters live and work in a post-COVID world. We believe these investments position us for sustained long term growth.”
2020 Financial Outlook
RealPage management expects to achieve the following results during the third quarter ending September 30, 2020:
GAAP total revenue is expected to be in the range of $288 million to $294 million; GAAP net income per diluted share is expected to be in the range of $0.05 to $0.10; Non-GAAP total revenue is expected to be in the range of $288 million to $294 million; Adjusted EBITDA is expected to be in the range of $74 million to $78 million; Non-GAAP net income per diluted share is expected to be in the range of $0.43 to $0.46; Non-GAAP diluted weighted average shares outstanding are expected to be approximately 101.6 million.RealPage management expects to achieve the following results during the calendar year ending December 31, 2020:
GAAP total revenue is expected to be in the range of $1,134 million to $1,154 million; GAAP net income per diluted share is expected to be in the range of $0.30 to $0.38; Non-GAAP total revenue is expected to be in the range of $1,135 million to $1,155 million; Adjusted EBITDA is expected to be in the range of $300 million to $308 million; Non-GAAP net income per diluted share is expected to be in the range of $1.77 to $1.84; Non-GAAP diluted weighted average shares outstanding are expected to be approximately 98.6 million.Conference Call Information; Presentation Slides
The company will host a conference call at 5:00 p.m. EDT today to discuss its financial results. Participants are encouraged to listen to the presentation via a live web broadcast and to view the company’s presentation slides at https://78449.themediaframe.com/dataconf/productusers/rlpg/mediaframe/39699/indexl.html. In addition, a live dial-in is available domestically at 877-407-9128 and internationally at 201-493-6752. A replay will be available at 877-660-6853 or 201-612-7415.
About RealPage
RealPage provides a technology platform that enables real estate owners and managers to change how people experience and use rental space. Clients use the platform to gain transparency in asset performance, leverage data insights and monetize space to create incremental yields. Founded in 1998 and headquartered in Richardson, Texas, RealPage currently serves approximately 19 million units worldwide from offices in North America, Europe and Asia. For more information about RealPage, please 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, future focus areas, and expected, possible or assumed future results, including its financial outlook for the third quarter ending September 30, 2020 and calendar year ending December 31, 2020, the surging demand for solutions that facilitate virtual leasing and living offered by RealPage, the anticipated investment in product development and sales and marketing at elevated levels to capitalize on the changing dynamics of the way renters live and work in a post-COVID world, and our belief that these investments position us for sustained long term growth. 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. These 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, including the uncertainty associated with the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations. 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 other uncertainty, and conditions and uncertainty caused by the COVID-19 pandemic, 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 recent or future acquired businesses successfully or to achieve expected synergies, including the recently completed acquisitions of Modern Message, Buildium, Investor Management Services, Simple Bills, Hipercept, and Lease Term Solutions; (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 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 2, 2020 and its Quarterly Report on Form 10-Q previously filed with the SEC on May 8, 2020. 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 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 deferred revenue. The company believes it is useful to include deferred revenue written down for GAAP purposes under purchase accounting rules 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 revenue arising from our strategic acquisitions.
The company defines “Adjusted Gross Profit” as gross profit, plus (1) acquisition-related deferred revenue, (2) depreciation, (3) amortization of product technologies, (4) organizational realignment costs and (5) stock-based expense. The company believes that investors and financial analysts find this non-GAAP financial measure 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, plus (1) acquisition-related deferred revenue, (2) depreciation, asset impairment, and loss on disposal of assets, (3) amortization of product technologies and intangible assets, (4) change in fair value of equity investment, (5) acquisition-related expense, (6) organizational realignment costs, (7) regulatory and legal matters, (8) stock-based expense, (9) interest expense, net, and (10) income tax expense (benefit). The company believes that investors and financial analysts find this non-GAAP financial measure 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 organizational realignment costs and stock-based expense. The company believes that investors and financial analysts find this non-GAAP financial measure 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 organizational realignment costs and stock-based expense. The company believes that investors and financial analysts find this non-GAAP financial measure 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) organizational realignment costs, (2) asset impairment and (gain) loss on disposal of assets, (3) acquisition-related expense, (4) regulatory and legal matters, and (5) stock-based expense. The company believes that investors and financial analysts find this non-GAAP financial measure 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) organizational realignment costs, (2) asset impairment and (gain) loss on disposal of assets, (3) amortization of intangible assets, (4) acquisition-related expense, (5) regulatory and legal matters, and (6) stock-based expense. The company believes that investors and financial analysts find this non-GAAP financial measure 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 deferred revenue, (2) asset impairment and (gain) loss on disposal of assets, (3) amortization of product technologies and intangible assets, (4) acquisition-related expense, (5) organizational realignment costs, (6) regulatory and legal matters, and (7) stock-based expense. The company believes that investors and financial analysts find this non-GAAP financial measure 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, plus (1) income tax expense (benefit), (2) acquisition-related deferred revenue, (3) asset impairment and (gain) loss on disposal of assets, (4) amortization of product technologies and intangible assets, (5) change in fair value of equity investment, (6) acquisition-related expense, (7) organizational realignment costs, (8) regulatory and legal matters, (9) amortization of convertible notes’ discount, and (10) stock-based expense, less (11) provision for income tax expense based on an assumed rate in order to approximate the company’s long-term effective corporate tax rate.
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 this non-GAAP financial measure 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 Diluted Weighted Average Shares Outstanding" as diluted weighted average shares outstanding excluding the impact of shares that are issuable upon conversions of our convertible notes. 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 and capped call transactions entered into in May 2017 and May 2020, respectively, in connection with the issuance of the convertible notes.
The company defines “Non-GAAP On Demand Revenue” as total on demand revenue plus acquisition-related deferred revenue. The company believes it is useful to include deferred revenue written down for GAAP purposes under purchase accounting rules 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 at a point in time. 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 – 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. The non-GAAP tax rate excludes the tax effect of these items. We believe excluding these items assists investors and analysts in understanding the tax provision and the effective tax rate related to non-GAAP operations. In 2019, the company used a non-GAAP tax rate of approximately 26% to approximate the company’s long-term effective corporate tax rate. During 2019, the company availed itself of research and development tax credits for both federal and state and other state tax credits that will impact its long-term effective tax rate in future periods. For 2020 guidance purposes, the company uses a non-GAAP tax rate of 24% to more align with the expected impact of the credits and other anticipated impacts of US tax reform as rules are clarified by the US Treasury and foreign jurisdictional changes that impact the company’s tax portfolio globally. This non-GAAP tax rate will be reviewed annually to determine whether it remains appropriate in consideration of the company’s operating environment, changes in tax legislation, jurisdictional mix of earnings, and other factors deemed appropriate and necessary. Acquisition-related deferred revenue – This item is included to reflect deferred revenue written down for GAAP purposes under purchase accounting 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 (gain) loss on disposal of assets – This item comprises gains and losses on the disposal and impairment of long-lived assets, and impairment of intangible assets, which are not reflective of the company’s ongoing operations. We believe exclusion of this item facilitates a more accurate comparison of the company’s results of operations between periods. Depreciation of long-lived assets – Long-lived assets are depreciated over their estimated useful lives in a manner reflecting the pattern in which the economic benefit is consumed. Management is limited in its ability to change or influence these charges after the asset has been acquired and placed in service. We do not believe that depreciation expense accurately reflects the performance of our ongoing operations for the period in which the charges are incurred, and is therefore not considered by management in making operating decisions. Amortization of product technologies and intangible assets – Intangible assets are amortized over their estimated useful lives and generally cannot be changed or influenced by the company after initial capitalization. Accordingly, this item is 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. Change in fair value of equity investment – This item represents changes in fair value of our equity investment based on observable price changes in orderly transactions for an identical or similar investment of the same issuer. We believe exclusion of this item facilitates a more accurate comparison of our results of operations between periods as this item is not reflective of our ongoing operations. Acquisition-related expense – This item consists of direct costs incurred in our business acquisition transactions and expenses related to integration activities, and the impact of changes in the fair value of acquisition-related contingent consideration obligations. Examples of these direct costs include transaction fees, due diligence costs, acquisition retention bonuses and severance, and third-party consultants to assist with integration. We believe exclusion of this item 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. Organizational realignment – This item consists of direct costs associated with the alignment of our business strategies. In connection with these actions, we recognize costs related to termination benefits, exit costs associated with closure of facilities, certain asset impairments, cancellation of certain contracts, and other professional and consulting fees associated with these initiatives. We believe exclusion of this item facilitates a more accurate comparison of our ongoing results of operations between periods. Regulatory and legal matters – This item is comprised of certain regulatory and similar costs and certain legal settlement costs, such as costs related to the company’s Hart-Scott-Rodino Antitrust Improvements Act review process incurred in connection with our acquisitions or the settlement of certain legal matters. These costs are excluded as they are irregular in timing and scope, and may not be indicative of our past and future performance. We believe exclusion of this item facilitates a more accurate comparison of the company’s results of operations between periods. Amortization of convertible notes’ discount – This item consists of non-cash interest expense related to the amortization of the discount recognized on the convertible notes issued in May 2017 and May 2020. 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.2020
2019
Assets Current assets: Cash and cash equivalents$ 638,556
$ 197,154
Restricted cash
262,397
243,323
Accounts receivable, less allowances of $11,814 and $10,271 at June 30, 2020 and December 31, 2019, respectively
129,675
143,127
Prepaid expenses
28,613
24,539
Other current assets
28,354
27,387
Total current assets
1,087,595
635,530
Property, equipment, and software, net
169,222
163,282
Right-of-use assets
114,372
121,941
Goodwill
1,663,639
1,611,749
Intangible assets, net
348,620
372,996
Deferred tax assets, net
28,525
33,812
Other assets
28,473
30,507
Total assets
$ 3,440,446
$ 2,969,817
Liabilities and stockholders’ equity Current liabilities: Accounts payable
$ 40,700
$ 40,092
Accrued expenses and other current liabilities
98,624
89,038
Current portion of deferred revenue
132,796
134,148
Current portion of term loans
26,250
18,750
Convertible notes, net
311,638
-
Customer deposits held in restricted accounts
263,133
243,316
Total current liabilities
873,141
525,344
Deferred revenue
4,062
4,793
Revolving facility
-
230,000
Term loans, net
560,571
575,313
Convertible notes, net
283,122
305,188
Lease liabilities, net of current portion
125,697
133,313
Other long-term liabilities
34,038
22,940
Total liabilities
1,880,631
1,796,891
Stockholders’ equity: Common stock, $0.001 par value: 250,000,000 shares authorized, 102,206,190 and 96,100,296 shares issued and 101,990,040 and 94,744,157 shares outstanding at June 30, 2020 and December 31, 2019, respectively
102
96
Additional paid-in capital
1,561,672
1,222,356
Treasury stock, at cost: 216,150 and 1,356,139 shares at June 30, 2020 and December 31, 2019, respectively
(4,527
)
(39,483
)
Retained earnings (deficit)8,695
(7,695
)
Accumulated other comprehensive loss(6,127
)
(2,348
)
Total stockholders’ equity1,559,815
1,172,926
Total liabilities and stockholders’ equity
$ 3,440,446
$ 2,969,817
2020
2019
2020
2019
Revenue: On demand$ 278,559
$ 235,185
$ 547,030
$ 461,704
Professional and other7,048
8,676
15,250
16,463
Total revenue285,607
243,861
562,280
478,167
Cost of revenue(1)110,713
95,708
219,623
185,902
Amortization of product technologies14,531
9,900
28,303
19,414
Gross profit160,363
138,253
314,354
272,851
Operating expenses: Product development(1)31,433
28,151
62,981
58,048
Sales and marketing(1)49,424
49,120
104,081
93,943
General and administrative(1)42,399
28,310
82,927
56,453
Amortization of intangible assets11,247
10,402
22,666
20,238
Total operating expenses134,503
115,983
272,655
228,682
Operating income25,860
22,270
41,699
44,169
Interest expense and other, net(12,692)
(8,029)
(25,427)
(14,009)
Income before income taxes13,168
14,241
16,272
30,160
Income tax expense (benefit)1,867
(822)
(634)
3,825
Net income$ 11,301
$ 15,063
$ 16,906
$ 26,335
Net income per share attributable to common stockholders: Basic$ 0.12
$ 0.16
$ 0.18
$ 0.29
Diluted$ 0.11
$ 0.16
$ 0.17
$ 0.27
Weighted average common shares outstanding: Basic95,752
91,914
94,203
91,703
Diluted100,254
96,493
98,143
96,036
(1) Includes stock-based expense as follows: Three Months Ended Six Months Ended June 30, June 30,2020
2019
2020
2019
Cost of revenue$ 2,257
$ 1,447
$ 4,267
$ 2,778
Product development1,629
2,016
3,566
4,496
Sales and marketing2,296
6,383
8,184
11,733
General and administrative6,149
6,019
12,515
11,771
$ 12,331
$ 15,865
$ 28,532
$ 30,778
2020
2019
2020
2019
Cash flows from operating activities: Net income$ 11,301
$ 15,063
$ 16,906
$ 26,335
Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization
34,344
29,016
67,906
56,840
Amortization of debt discount and issuance costs
4,936
3,279
8,410
6,513
Amortization of right-of-use assets
3,380
2,920
6,983
5,925
Deferred taxes
1,759
1,686
(1,233
)
4,236
Stock-based expense
12,331
15,865
28,532
30,778
Loss on disposal and impairment of other long-lived assets
-
(17
)
12
269
Change in fair value of equity investment
-
-
-
(2,600
)
Acquisition-related consideration(596
)
294
(107
)
699
Change in customer deposits
21,375
3,706
16,368
(46,546
)
Other changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations7,217
(2,427
)
13,852
(9,072
)
Net cash provided by operating activities96,047
69,385
157,629
73,377
Cash flows from investing activities: Purchases of property, equipment, and software
(16,492
)
(12,593
)
(29,746
)
(23,466
)
Acquisition of businesses, net of cash and restricted cash acquired(38
)
(17,528
)
(59,500
)
(17,528
)
Purchase of other investment-
(1,750
)
-
(1,750
)
Net cash used in investing activities(16,530
)
(31,871
)
(89,246
)
(42,744
)
Cash flows from financing activities: Payments on and proceeds from debt, net104,051
(4,034
)
100,301
(8,067
)
Purchase of capped call instruments(39,365
)
-
(39,365
)
-
Payments on finance lease obligations
(822
)
(1,358
)
(1,633
)
(2,127
)
Payments of acquisition-related consideration(2,347
)
(8,835
)
(2,392
)
(20,247
)
Proceeds from public offering, net of underwriters’ discount and offering costs334,402
-
334,402
-
Proceeds from exercise of stock options
2,816
1,192
7,722
3,069
Purchase of treasury stock related to stock-based compensation
(2,750
)
(6,092
)
(6,243
)
(11,108
)
Other financing activities, net(348
)
-
(374
)
-
Net cash provided by (used in) financing activities
395,637
(19,127
)
392,418
(38,480
)
Net increase (decrease) in cash, cash equivalents and restricted cash475,154
18,387
460,801
(7,847
)
Effect of exchange rate on cash180
118
(325
)
19
Cash, cash equivalents and restricted cash: Beginning of period
425,619
356,425
440,477
382,758
End of period
$ 900,953
$ 374,930
$ 900,953
$ 374,930
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,
2020
2019
2020
2019
Revenue (GAAP)$
285,607
$
243,861
$
562,280
$
478,167
Acquisition-related deferred revenue
425
157
825
381
Non-GAAP Total Revenue
$
286,032
$
244,018
$
563,105
$
478,548
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,
2020
2019
2020
2019
Gross profit (GAAP)$
160,363
$
138,253
$
314,354
$
272,851
Acquisition-related deferred revenue
425
157
825
381
Depreciation
3,830
4,017
7,610
7,688
Amortization of product technologies
14,531
9,900
28,303
19,414
Organizational realignment
255
-
453
-
Stock-based expense
2,257
1,447
4,267
2,778
Adjusted Gross Profit
$
181,661
$
153,774
$
355,812
$
303,112
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,
2020
2019
2020
2019
Net income (GAAP)$
11,301
$
15,063
$
16,906
$
26,335
Acquisition-related deferred revenue
425
157
825
381
Depreciation, asset impairment, and loss on disposal of assets
8,566
8,697
16,949
17,457
Amortization of product technologies and intangible assets
25,778
20,302
50,969
39,652
Change in fair value of equity investment
-
-
-
(2,600
)
Acquisition-related expense
3,137
376
6,861
405
Organizational realignment
1,220
-
2,431
-
Regulatory and legal matters
2,150
352
2,509
352
Stock-based expense
12,331
15,865
28,532
30,778
Interest expense, net
13,129
8,241
26,034
16,822
Income tax expense (benefit)
1,867
(822
)
(634
)
3,825
Adjusted EBITDA
$
79,904
$
68,231
$
151,382
$
133,407
2020
2019
2020
2019
Product development expense (GAAP)$
31,433
$
28,151
$
62,981
$
58,048
Less: Organizational realignment
465
-
698
-
Stock-based expense
1,629
2,016
3,566
4,496
Non-GAAP Product Development Expense$
29,339
$
26,135
$
58,717
$
53,552
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 30,2020
2019
2020
2019
Sales and marketing expense (GAAP)$
49,424
$
49,120
$
104,081
$
93,943
Less: Organizational realignment
278
-
889
-
Stock-based expense
2,296
6,383
8,184
11,733
Non-GAAP Sales and Marketing Expense$
46,850
$
42,737
$
95,008
$
82,210
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 30,2020
2019
2020
2019
General and administrative expense (GAAP)$
42,399
$
28,310
$
82,927
$
56,453
Less: Organizational realignment
222
-
391
-
Asset impairment and (gain) loss on disposal of assets
-
(17
)
12
269
Acquisition-related expense
3,137
376
6,861
405
Regulatory and legal matters
2,150
352
2,509
352
Stock-based expense
6,149
6,019
12,515
11,771
Non-GAAP General and Administrative Expense$
30,741
$
21,580
$
60,639
$
43,656
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 30,2020
2019
2020
2019
Operating expense (GAAP)$
134,503
$
115,983
$
272,655
$
228,682
Less: Organizational realignment
965
-
1,978
-
Asset impairment and (gain) loss on disposal of assets
-
(17
)
12
269
Amortization of intangible assets
11,247
10,402
22,666
20,238
Acquisition-related expense
3,137
376
6,861
405
Regulatory and legal matters
2,150
352
2,509
352
Stock-based expense
10,074
14,418
24,265
28,000
Non-GAAP Operating Expense$
106,930
$
90,452
$
214,364
$
179,418
2020
2019
2020
2019
Operating income (GAAP)$
25,860
$
22,270
$
41,699
$
44,169
Acquisition-related deferred revenue
425
157
825
381
Asset impairment and (gain) loss on disposal of assets
-
(17
)
12
269
Amortization of product technologies and intangible assets
25,778
20,302
50,969
39,652
Acquisition-related expense
3,137
376
6,861
405
Organizational realignment
1,220
-
2,431
-
Regulatory and legal matters
2,150
352
2,509
352
Stock-based expense
12,331
15,865
28,532
30,778
Non-GAAP Operating Income
$
70,901
$
59,305
$
133,838
$
116,006
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,
2020
2019
2020
2019
Net income (GAAP)$
11,301
$
15,063
$
16,906
$
26,335
Income tax expense (benefit)
1,867
(822
)
(634
)
3,825
Income before income taxes
13,168
14,241
16,272
30,160
Acquisition-related deferred revenue
425
157
825
381
Asset impairment and (gain) loss on disposal of assets
-
(17
)
12
269
Amortization of product technologies and intangible assets
25,778
20,302
50,969
39,652
Change in fair value of equity investment
-
-
-
(2,600
)
Acquisition-related expense
3,137
376
6,861
405
Organizational realignment
1,220
-
2,431
-
Regulatory and legal matters
2,150
352
2,509
352
Amortization of convertible notes' discount
4,183
2,717
7,021
5,393
Stock-based expense
12,331
15,865
28,532
30,778
Non-GAAP income before income taxes
62,392
53,993
115,432
104,790
Assumed rate for income tax expense (1)
24.0
%
26.0
%
24.0
%
26.0
%
Assumed provision for non-GAAP income tax expense
14,974
14,038
27,704
27,245
Non-GAAP Net Income
$
47,418
$
39,955
$
87,728
$
77,545
Net income per diluted share
$
0.11
$
0.16
$
0.17
$
0.27
Non-GAAP Net Income per Diluted Share
$
0.49
$
0.43
$
0.92
$
0.83
Weighted average outstanding shares - basic
95,752
91,914
94,203
91,703
Non-GAAP Adjusted Diluted Weighted Average Shares Outstanding: Weighted average outstanding shares - diluted
100,254
96,493
98,143
96,036
Dilution offset from convertible note hedge transactions
(2,755
)
(2,528
)
(2,462
)
(2,368
)
Non-GAAP Diluted Weighted Average Shares Outstanding (2)
97,499
93,965
95,681
93,668
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,
2020
2019
2020
2019
On demand revenue (GAAP)$
278,559
$
235,185
$
547,030
$
461,704
Acquisition-related deferred revenue
425
157
825
381
Non-GAAP On Demand Revenue
$
278,984
$
235,342
$
547,855
$
462,085
2020
2019
2020
2019
Ending on demand units
18,880
16,505
18,880
16,505
Average on demand units
18,844
16,453
18,743
16,382
ACV
$
1,118,074
$
942,436
RPU
$
59.22
$
57.10
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, 2020, and the twelve months ending December 31, 2020. 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, 2020 December 31, 2020 Low (3) High (3) Low (3) High (3) Revenue (GAAP)
$
287,710
$
293,710
$
1,133,710
$
1,153,710
Acquisition-related deferred revenue
290
290
1,290
1,290
Non-GAAP Total Revenue
$
288,000
$
294,000
$
1,135,000
$
1,155,000
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, 2020, and the twelve months ending December 31, 2020. 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, 2020 December 31, 2020 Low (3) High (3) Low (3) High (3) Non-GAAP Net Income: Net income (GAAP)
$
5,602
$
9,982
$
30,230
$
38,908
Income tax expense
1,188
2,558
2,990
5,762
Income before income taxes
6,790
12,540
33,220
44,670
Acquisition-related deferred revenue
290
290
1,290
1,290
Asset impairment and loss on disposal of assets
-
-
20
20
Amortization of product technologies and intangible assets
25,300
24,900
101,480
100,680
Acquisition-related expense
1,540
1,440
9,920
9,620
Organizational realignment
750
500
3,480
3,130
Regulatory and legal matters
-
-
2,510
2,510
Amortization of convertible notes' discount
5,960
5,960
19,040
19,040
Stock-based expense
16,260
15,860
58,770
57,970
Non-GAAP income before income taxes
56,890
61,490
229,730
238,930
Expected effective tax rate (1)
24.0
%
24.0
%
24.0
%
24.0
%
Assumed provision for income tax expense
13,654
14,758
55,135
57,343
Non-GAAP Net Income
$
43,236
$
46,732
$
174,595
$
181,587
Net income per diluted share
$
0.05
$
0.10
$
0.30
$
0.38
Non-GAAP Net Income per Diluted Share
$
0.43
$
0.46
$
1.77
$
1.84
Non-GAAP Adjusted Diluted Weighted Average Shares Outstanding: Weighted average outstanding shares - diluted
104,703
104,703
101,448
101,448
Dilution offset from convertible note hedge transactions
(3,151
)
(3,151
)
(2,843
)
(2,843
)
Non-GAAP Diluted Weighted Average Shares Outstanding (2)
101,552
101,552
98,605
98,605
Adjusted EBITDA Guidance
Set forth below is a presentation of the company’s "Adjusted EBITDA" guidance for the three months ending September 30, 2020, and the twelve months ending December 31, 2020. Please reference the "Explanation of Non-GAAP Financial Measures" section. Guidance Range for theThree Months Ending Guidance Range for the
Twelve Months Ending September 30, 2020 December 31, 2020 Low (3) High (3) Low (3) High (3) Adjusted EBITDA: Net income (GAAP)
$
5,602
$
9,982
$
30,230
$
38,908
Acquisition-related deferred revenue
290
290
1,290
1,290
Depreciation, asset impairment, and loss on disposal of assets
8,970
8,770
35,130
34,730
Amortization of product technologies and intangible assets
25,300
24,900
101,480
100,680
Acquisition-related expense
1,540
1,440
9,920
9,620
Organizational realignment
750
500
3,480
3,130
Regulatory and legal matters
-
-
2,510
2,510
Stock-based expense
16,260
15,860
58,770
57,970
Interest expense, net
14,100
13,700
54,200
53,400
Income tax expense
1,188
2,558
2,990
5,762
Adjusted EBITDA$
74,000
$
78,000
$
300,000
$
308,000
(1)
For 2020 guidance purposes, the company uses a 24.0% tax rate 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 and capped call transactions entered into in May 2017 and May 2020, respectively, 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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