Annual Report
2011
To Our Stockholders:
2011 was another strong year for RealPage.
us to exit the fourth quarter of 2011 with the
strongest new sales in company history.
The year was highlighted by solid fi nancial
We also invested in several acquisitions that were
performance and investments across our business.
natural extensions to our business, and expanded
Compared to the year ended December 31, 2010,
our total addressable market to approximately
total Non-GAAP revenue accelerated, growing
$9 billion. We acquired Compliance Depot,
37% while we achieved on demand revenue
which provides property owners and managers
organic growth of 24%. Adjusted EBITDA
a complete vendor risk management solution.
grew 60%, with Adjusted EBITDA margins
We also acquired SeniorLiving.Net, a lead
expanding 300 basis points. During the year
generation and placement network for senior
we added 1.2 million on demand rental units,
communities. Following the acquisition, we
or 20% growth. Revenue per unit also grew
made a series of investments to expand lead
13%. Cash fl ow from operations was especially
generation and implement our senior living
strong, growing nearly $22 million dollars
contact center into the existing LeaseStar contact
to more than $49 million, or 78% growth.
center. These investments will help us provide
solutions to our customers that generate, qualify
We believe these positive results underscore
and capture additional senior living leads. We
our continued focus on expanding new
complemented these senior living investments
rental units and cross-selling additional
with our acquisition of Vigilan in early
solutions within our installed base. I am
2012. Vigilan’s products allow assisted living
proud of our execution and performance.
communities to monitor and schedule detailed
In addition to achieving strong growth and
billing and maintain regulatory compliance
profi tability levels, we also invested in areas
through use of a 50-state compliance module.
care, manage labor costs, provide accurate
that we expect will fuel our growth in the
coming years. We invested signifi cantly in
As a result of these investments in the senior
our sales force in order to expand market
living market, we launched RealPage Senior
share by attacking what we believe is a large
Living in early 2012. We expect this offering to
opportunity in the rental housing industry for
be one of the most comprehensive Software-as-
our solutions. We ended the fourth quarter
a-Service solutions in the industry, integrating
with 163 sales reps, 41% growth compared
property management, care management
to 2010, or 25% growth excluding headcount
and multichannel marketing capabilities into
added through acquisitions. This investment,
a single offering. We believe this offering
combined with demand for our solutions, enabled
will enable senior living property owners to
l
manage their operations more effi ciently and
generation and paid lead generation; provide
effectively. I am excited about what we can
visibility into all lead channels; and, provide
deliver and the demographic tailwinds that
tools and services to manage each lead channel
exist in this segment of rental housing.
as well as optimize the conversion of leads to
leases. We believe we are well on our way to
MyNewPlace was, perhaps, our most signifi cant
offering a solution with all of these features.
acquisition to date. In 2010, we spoke about our
intention of competing for the rental housing
For 2012, our strategy will stay the same: focus
industry’s signifi cant advertising spend. That
on expanding new rental housing units and cross-
year, we began to lay the foundation to accomplish
selling additional solutions into our installed
that goal, and we believe the acquisition of
base. We expect to leverage our investments
MyNewPlace signifi cantly enhances our
in the coming year and continue to build out
offering. The acquisition brought a talented
the most comprehensive platform in the rental
pool of consumer-Internet specialists, tools
housing industry to help property owners
to manage advertising campaigns for Internet
optimize every aspect of the resident lifecycle.
classifi ed directories and vastly expanded our
lead generation capabilities. Our goal to displace
In closing, I would like to sincerely thank
traditional lead generation methods and reduce
our customers, stockholders and employees
costs for property owners is becoming a reality.
for their continued support and steadfast
dedication to our vision. We are committed
We are in the midst of an upgrade to
to improving the business of our customers by
MyNewPlace, which will leverage RealPage’s
optimizing the effi ciency of their operations,
core functionality and is expected to go live in
increasing shareholder value and making
2012. We believe that these upgrades will provide
RealPage a destination workplace as we
a signifi cantly more powerful rental housing
strive to be the leading Software-as-a-Service
search experience. While MyNewPlace’s pay-
platform for the rental housing industry.
for-performance Internet listing service will
be an important part of our overall managed
Sincerely,
marketing platform, it is only a piece of the
solution. In our view, the managed marketing
platform that will win over the long-term in
Steve Winn
the rental housing industry must: reduce total
Chairman and Chief Executive Offi cer
marketing costs for property owners by enabling
a cost-effective balance between organic lead
2
KEY OPERATING METRICS
Strong Growth
Total Revenue 4-year CAGR: 33%
$258.7 (1)
$188.3
$140.9
$112.6
$83.6
2007
2008
2009
2010
2011
4-year CAGR: 27%
7,302
Ending On-Demand Rental Units (000’s)
6,066
4,551
3,833
2,800
2007
2008
2009
2010
2011
Strong EBITDA and Margin Expansion
Adjusted EBITDA (2)
Free Cash Flow (3)
($ in MM)
$35.3
$25.6
$23.1
$13.1
$16.1
$6.0
$2.8
$56.5
$40.3
2007
$(1.1)
2008
2009
2010
2011
(1) See dicussion and reconciliation of Non-GAAP on-demand revenue included within this document.
(2) See dicussion and reconciliation of Adjusted EBITDA to GAAP Net Income included within this document.
(3) For purposes of managing our business, we defi ne free cash fl ow as adjusted EBITDA minus capital expenditures.
3
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-K
________________________________
(Mark One)
(cid:53) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2011
or
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
to
Commission File Number: 001-34846
RealPage, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4000 International Parkway
Carrollton, Texas
(Address of principal executive offices)
75-2788861
(I.R.S. Employer
Identification No.)
75007-1951
(Zip Code)
(972) 820-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.001 par value
(Title of class)
The NASDAQ Stock Market LLC
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes (cid:53) No (cid:133)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:53)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes (cid:53) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes (cid:53) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:53)
Accelerated filer (cid:133)
Non-accelerated filer (cid:133)
Smaller reporting company (cid:133)
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:53)
Based on the closing price of the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter, which was June
30, 2011, the aggregate market value of its shares held by non-affiliates held on that date was approximately $908,924,000. For purposes of this calculation, the
registrant assumed that all 5% holders, directors and executive officers of the registrant are affiliates.
On February 10, 2012, 72,740,063 shares of the registrant’s Common Stock, $0.001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its fiscal 2011 Annual Meeting of Stockholders to be filed within 120 days of the Registrant’s fiscal
year ended December 31, 2011 are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.
PART I
TABLE OF CONTENTS
Item 1. Business ................................................................................................................................................
Item 1A. Risk Factors .......................................................................................................................................
Item 1B. Unresolved Staff Comments ..............................................................................................................
Item 2. Properties ..............................................................................................................................................
Item 3. Legal Proceedings ................................................................................................................................
Item 4. Reserved ...............................................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ..........................................................................................................................................
Item 6. Selected Financial Data ........................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ...............
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........................................................
Item 8. Financial Statements and Supplementary Data ....................................................................................
2
18
43
43
43
44
45
47
50
72
73
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............
102
Item 9A. Controls and Procedures ....................................................................................................................
102
Item 9B. Other Information ..............................................................................................................................
103
PART III
Item 10. Directors, Executive Officers and Corporate Governance .................................................................
103
Item 11. Executive Compensation ....................................................................................................................
103
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters .........................................................................................................................................................
103
Item 13. Certain Relationships, and Related Transactions, and Director Independence ..................................
103
Item 14. Principal Accountant Fees and Services.............................................................................................
103
PART IV
Item 15. Exhibits and Financial Statement Schedules ......................................................................................
104
SIGNATURES AND EXHIBIT INDEX
Signatures .........................................................................................................................................................
105
Exhibit Index ....................................................................................................................................................
106
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report on Form 10-K that are subject to risks and
uncertainties. Forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section and Section 21E of the Securities Exchange Act of 1934, as amended, are subject to the “safe harbor” created by
those sections. The forward-looking statements in this report are based on our management’s beliefs and assumptions and on
information currently available to our management. In some cases, you can identify forward-looking statements by terms
such as “anticipates,” “aspires,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “projects,” “seeks,” “should,” “will” or “would” or the negative of these terms and similar expressions intended
to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors,
which may cause our actual results, performance, time frames or achievements to be materially different from any future
results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many
of these risks, uncertainties and other factors in this document in greater detail under the heading “Risk Factors.” We
believe it is important to communicate our expectations to our investors. However, there may be events in the future that we
are not able to predict accurately or over which we have no control. The risks described in “Risk Factors” included in this
report, as well as any other cautionary language in this report, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the events described in “Risk Factors” and
elsewhere in this report could harm our business.
Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking
statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing.
You should read this document completely and with the understanding that our actual future results may be materially
different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as
required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons
actual results could differ materially from those anticipated in these forward-looking statements, even if new information
becomes available in the future.
1
Item 1. Business
Company Overview
PART I
RealPage, Inc., a Delaware corporation, and its subsidiaries, (the “Company” or “we” or “us”) is a leading provider of
on demand software solutions for the rental housing industry. Our broad range of property management solutions enables
owners and managers of single-family and a wide variety of multi-family rental property types to manage their marketing,
pricing, screening, leasing, accounting, purchasing and other property operations. Our on demand software solutions are
delivered through an integrated software platform that provides a single point of access and a shared repository of prospect,
resident and property data. By integrating and streamlining a wide range of complex processes and interactions among the
rental housing ecosystem of owners, managers, prospects, residents and service providers, our platform helps optimize the
property management process and improves the experience for all of these constituents.
Our solutions enable property owners and managers to increase revenues and reduce operating costs through higher
occupancy, improved pricing methodologies, new sources of revenue from ancillary services, improved collections and more
integrated and centralized processes. As of December 31, 2011, approximately 7,800 customers used one or more of our on
demand software solutions to help manage the operations of approximately 7.3 million rental housing units. Our customers
include each of the ten largest multi-family property management companies in the United States, ranked as of January 1,
2011 by the National Multi Housing Council, based on number of units managed.
We sell our solutions through our direct sales organization. Our total revenues were approximately $258.0 million,
$188.3 million and $140.9 million at December 31, 2011, 2010 and 2009, respectively. In the same periods, we had operating
income of approximately $1.8 million, $6.3 million and $6.9 million, respectively, and net (loss) income of approximately
$(1.2) million, $0.1 million and $28.4 million, respectively. Net income for 2009 included a discrete tax benefit of
approximately $26.0 million as a result of a reduction of our net deferred tax assets valuation allowance.
Our company was formed in 1998 to acquire Rent Roll, Inc., which marketed and sold on premise property management
systems for the conventional and affordable multi-family rental housing markets. In June 2001, we released OneSite, our first
on demand property management system. Since 2002, we have expanded our on demand software solutions to include a
number of software-enabled value-added services that provide complementary sales and marketing, asset optimization, risk
mitigation, billing and utility management and spend management capabilities. In connection with this expansion, we have
allocated greater resources to the development and infrastructure needs of developing and increasing sales of our suite of on
demand software solutions. In addition, since July 2002, we have completed 18 acquisitions of complementary technologies
to supplement our internal product development and sales and marketing efforts and expand the scope of our solutions, the
types of rental housing properties served by our solutions and our customer base.
On August 11, 2010, our registration statement on Form S-1 (File No 333-166397) relating to our initial public offering
was declared effective by the Securities and Exchange Commission (SEC). We sold 6,000,000 shares of common stock in
our initial public offering. Our common stock began trading on August 12, 2010 on the NASDAQ Global Select Stock
Market under the symbol “RP,” and the offering closed on August 17, 2010. Upon closing of our initial public offering, all
outstanding shares of our convertible preferred stock, including a portion of accrued but unpaid dividends on our outstanding
shares of Series A, Series A1 and Series B convertible preferred stock, were converted into 29,567,952 shares of common
stock.
On December 6, 2010, our registration statement on Form S-1 (File No 333-170667) relating to a public stock offering
was declared effective by the SEC. We sold an additional 4,000,000 shares of common stock in the offering. The offering
closed on December 10, 2010.
2
Industry Overview
The rental housing market is large, growing and complex.
The rental housing market is large and characterized by challenging and location-specific operating requirements,
diverse industry participants, significant mobility among residents and a variety of property types, including single-family
and a wide range of multi-family property types, including conventional, affordable, privatized military, student and senior
housing. According to the U.S. Census Bureau American Housing Survey for the United States, there were 39.7 million
rental housing units in the United States in 2009. The U.S. Census Bureau divides the rental housing market into the
following categories:
Property Size
Single-family properties
1 unit .............................................................................................................................................................
2-4 units ........................................................................................................................................................
Multi-family properties
5-9 units ........................................................................................................................................................
10-49 units ....................................................................................................................................................
50 or more units ............................................................................................................................................
Total Rental Units .......................................................................................................................................
Number of
Estimated Units
(in millions)
14.5
7.8
5.3
8.4
3.7
39.7
Based on U.S. Census Bureau data and our own estimates, we believe that the overall size of the U.S. rental housing
market, including rent, utilities and insurance, exceeds $300 billion annually. We estimate that the total addressable market
for our current on demand software solutions is approximately $9.0 billion per year. This estimate assumes that each of the
39.7 million rental units in the United States has the potential to generate annually a range of approximately $150 in revenue
per unit for single-family units to approximately $350 in revenue per unit for conventional multi-family units. In addition, we
estimate that the student and senior markets have the potential to generate annually approximately $700 in revenue per unit.
We base this potential revenue assumption on our review of the purchasing patterns of our existing customers with respect to
our on demand software solutions, the on demand software solutions currently utilized by our existing customers, the number
of units our customers manage with these solutions and our current pricing for on demand software solutions. Furthermore,
the U.S. rental housing market has recently benefited from a number of significant trends, including decreased home
ownership resulting in additional renter households and tougher mortgage lending standards reducing first-time home
purchases and contributing to lower rates of renter attrition as renters choose to remain in rental units.
Rental property management spans both the resident lifecycle and the operations of a property.
The resident lifecycle can be separated into four key stages: prospect, applicant, residency and post-residency. Each
stage has unique requirements, and a property owner’s or manager’s ability to effectively address these requirements can
significantly impact revenue and profitability.
In addition to managing the resident lifecycle, property owners and managers must also manage the operations of their
properties. Critical components of property operations include materials and service provider procurement, insurance and risk
mitigation, utility and energy management, information technology and telecommunications management, accounting,
expense tracking and management, document management, security, staff hiring and training, staff performance measurement
and management and marketing.
Managing the resident lifecycle and the operations of a property involves several different constituents, including
property owners and managers, prospects, residents and service providers. Property owners can include single-property
owners, multi-property owners, national residential apartment syndicators that may own thousands of units through a variety
of investment funds and real estate investment trusts, or REITs. Property managers often are responsible for a large number
of properties that can range from single-family units to large apartment communities. Property owners and managers also
need to manage a variety of service providers, including utilities, insurance providers, video, voice and data providers and
maintenance and capital goods suppliers. Managing these diverse relationships, combined with resident turnover and
regulatory and compliance requirements, can make the operations of even a small portfolio of rental properties complex.
Challenges are compounded for owners and managers responsible for a large portfolio of geographically dispersed properties,
which require overseeing potentially hundreds of thousands of individual rental processes.
3
Legacy information technology solutions designed to manage the rental housing property management process are
inadequate.
During the 1970’s and 1980’s, the rental housing market was highly fragmented and regionally organized. During this
period, the first property management systems and software solutions emerged to help property owners and managers with
basic accounting and record keeping functions. These solutions provided limited functionality and scalability and often were
not tailored to the specific needs of rental housing property owners and managers.
Beginning in the mid 1990’s, the rental housing market began to consolidate and large, nationally focused and publicly
financed companies emerged, which aggregated significant numbers of units. The rise of national real estate portfolio
managers, many of them accountable to public shareholders, created a need for more sophisticated and scalable property
management systems that included a centralized database and were designed to optimize and automate multiple business
processes within the resident lifecycle and property operations. Despite increasing market demands, the available solutions
continued to be insufficient to fully address the complex requirements of rental housing property owners and managers,
which moved beyond basic accounting and record keeping functions to also include value-added services such as Internet
marketing, applicant screening, billing solutions and analytics for pricing and yield optimization.
To address their complex and evolving requirements, many rental housing property owners and managers have
historically implemented a myriad of single point solutions and/or internally developed solutions to manage their properties.
These solutions can be expensive to implement and maintain and often lack integrated functionality to help owners and
managers increase rental revenue or reduce costs. In addition, many rental housing property owners and managers still rely
on paper or spreadsheet-based approaches, which are typically time intensive and prone to human error or internal
mismanagement.
In addition, owners and managers have relied upon print and Internet listing firms to attract leads required to fill
available vacancy. The cost per lease generated from these lead sources is highly variable ranging from a few hundred dollars
per lease to several thousand dollars per lease. We believe these historical solutions are inadequate because they:
•
•
•
•
•
•
•
•
•
•
require significant customization to implement, which frequently inhibits upgrading to new versions or platforms
in a timely manner;
require information technology, or IT, resources to support integration points between property management
systems and disparate value-added services;
require IT resources to implement and maintain data security, data integrity, performance and business continuity
solutions;
lack scalability and flexibility to account for the expansion or contraction of a property portfolio;
lack material organic lease generation capability and do not track the cost of leads generated by each source;
lack effective spend management capabilities for controlling property management costs;
lack comprehensive analytics for pricing and yield optimization;
lack workflow level integration;
do not provide owners and managers with visibility into overall property performance; and
cannot be easily updated to meet new regulations and compliance requirements.
On demand software solutions are well suited to meet the rental housing market’s needs.
The ubiquitous nature of the Internet, widespread broadband adoption and improved network reliability and security has
enabled the deployment and delivery of business-critical applications over the Internet. The on demand delivery model is
substantially more cost-effective than traditional on premise software solutions that generally have higher deployment and
support costs and require the customer to purchase and maintain the associated servers, storage, networks, security and
disaster recovery solutions.
4
The RealPage Solution
We provide a platform of on demand software solutions that integrates and streamlines rental property management
business functions. Our solutions enable owners and managers of single-family and a wide variety of multi-family rental
property types, including conventional, affordable, privatized military, student and senior housing, to manage their
marketing, pricing, screening, leasing, accounting, purchasing and other property operations. These functions have
traditionally been addressed by individual, disparate applications. Our solutions enable property owners and managers to
increase revenues and reduce operating costs through higher occupancy, improved pricing methodologies, new sources of
revenue from ancillary services, improved collections and more integrated and centralized business processes. Our solutions
contribute to a more efficient property management process and an improved experience for all of the constituents involved
in the rental housing ecosystem, including owners, managers, prospects, residents and service providers.
Benefits to Our Customers
We believe the benefits of our solutions for our customers include the following:
Increased revenues. Our solutions enable our customers to increase their revenues by improving their sales and
marketing effectiveness, optimizing their pricing and occupancy and improving collection of rental payments, utility
expenses, late fees and other charges.
Reduced 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. Our on demand delivery model also reduces owners’ and managers’
operating costs by eliminating their need to own and support the applications or associated hardware infrastructure. In
addition, our integrated solutions consolidate the initial implementation and training costs and ongoing support associated
with multiple applications that each provide only components of the functionality provided by our solutions. This is
particularly important for property owners and managers who want to reduce enterprise-class IT infrastructure, support and
staff training.
Improved quality of service for residents and prospects. Our solutions improve the level of service that property owners
and managers provide to residents and prospects by enabling many transactions to be completed online, expediting the
processing of rental applications, maintenance service requests and payments and increasing the frequency and quality of
communication with residents and prospects, providing higher resident satisfaction and increased differentiation from
competing properties that do not use our solutions.
Streamlined and simplified property management business processes. Our on demand platform provides integrated
solutions for managing a wide variety of property management processes that have traditionally been managed manually or
through separate applications. Our solutions utilize common authentication that enables data sharing and workflow
automation of certain business processes, thereby eliminating redundant data entry and simplifying many recurring tasks. The
efficiency of our solutions allows onsite and corporate personnel to utilize their time more effectively and to focus on the
strategic priorities of the business. We also make extensive use of online training courseware and our solutions are designed
to be usable by new employees almost immediately after their hiring, addressing an acute need of the multi-family industry in
which employee turnover is high.
Ability to integrate third-party products and services. Our open architecture and application framework facilitate the
integration of third-party applications and services into our solutions. This enables property managers to conduct these
business functions through the same system that they already use for many of their other tasks and to leverage the same
repository of prospect, resident and property data that supports our solutions.
Increased visibility into property performance. Our integrated platform and common data repository enable owners and
managers to gain a comprehensive view of the operational and financial performance of each of their properties. Our
solutions provide a library of standard reports, dashboards, scorecards and alerts, and we also provide interfaces to several
widely used report writers and business intelligence tools. In addition, our on demand delivery model makes it possible to
deliver benchmark data aggregated across more than 13,500 properties, factor rental payment history into applicant screening
processes and create more accurate supply/demand models and statistically based price elasticity models to improve price
optimization.
5
Simple implementation and support. Our solutions include pre-configured extensions that meet the specific needs of a
variety of property types and can be easily tailored by our customers to meet more specific requirements of their properties
and business processes. We strive to minimize the need for professional consulting services to implement our solutions and
train personnel.
Improved scalability. We host our solutions for our customers, thereby reducing or eliminating our customers’ costs
associated with expanding or contracting IT infrastructure as their property portfolios evolve. We also bear the risk of
technological obsolescence because we own and manage our data center infrastructure and are continually upgrading it to
newer generations of technology without any incremental cost to our customers.
Competitive Strengths of our Solutions
The competitive strengths of our solutions are as follows:
Integrated on demand software platform based on a common data repository. Our solutions are delivered through an
integrated on demand software platform that provides a single point of access via the Internet with a common repository of
prospect, resident and property data, which permits our solutions to access requested data through offline data transfer or in
real-time.
Large and growing ecosystem of property owners, managers, prospects, residents and service providers. Through
December 31, 2011, we have established a customer base of 7,790 customers who use one or more of our on demand
software solutions to help manage the operations of approximately 7.3 million rental housing units. Our customers include
each of the ten largest multi-family property management companies in the United States, ranked as of January 1, 2011 by
the National Multi Housing Council, based on number of units managed. Our solutions automate and streamline many of the
recurring transactions and interactions among this large and expanding ecosystem of property owners and managers,
prospects, residents and service providers, including prospect inquiries, applications, monthly rent payments and service
requests. As the number of constituents of our ecosystem increases, the volume of data in our common data repository and its
value to the constituents of our ecosystem grows.
Comprehensive platform of on demand software solutions for property management. Our on demand property
management systems and integrated software-enabled value-added services provide what we believe to be the broadest range
of on demand capabilities for managing the resident lifecycle and core operational processes for residential property
management. Our software-enabled value-added services provide complementary sales and marketing, asset optimization,
risk mitigation, billing and utility management and spend management capabilities that collectively enable our customers to
manage every stage of the resident lifecycle. In addition, we offer shared cloud services, including reporting, payment,
document management and training functionality that are common to all of our product families. These comprehensive
solutions enable us to address the needs of a wide range of property owners and managers across a broad range of rental
housing property types.
Deep rental housing industry expertise. We have been serving the rental housing industry exclusively for over 10 years
and our 25 most senior management team members have an average of approximately 16 years experience in the rental
housing industry. We design our solutions based on our extensive rental housing industry expertise, insight into industry
trends and developments and property management best practices that help our customers simplify the challenges of owning
and managing rental properties.
Open cloud computing architecture. Our cloud computing architecture enables our solutions to interface with our
customers’ existing systems and allows our customers to outsource the management of third-party business applications. This
open architecture enables our customers to buy our solutions incrementally while continuing to use existing third-party
solutions, allowing us to shorten sales cycles and increase adoption of our solutions within our target market.
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Our Strategy
We intend to leverage the breadth of our solutions and industry presence to solidify our position as a leading provider of
on demand software solutions to the rental housing industry. The key elements of our strategy to accomplish this objective
are as follows:
Acquire new customers. We intend to actively pursue new customer relationships with property owners and managers
that do not currently use our solutions. In addition to marketing our core property management systems, we will also seek to
sell our software-enabled value-added services to customers of other third-party property management systems by utilizing
our open architecture to facilitate integration of our solutions with those systems.
Increase the adoption of additional solutions within our existing customer base. Many of our customers rely on our
property management systems to manage their daily operations and track all of their critical prospect, resident and property
information. Additionally, some of our customers utilize our software-enabled value-added services to complement third-
party ERP systems. We have continually introduced new software-enabled value-added services to complement our property
management systems and marketed our on demand property management systems to our customers who are utilizing third-
party ERP systems. We believe that the penetration of our on demand software solutions to date has been modest and that
there exists significant potential for additional on demand revenue from sales of these solutions to our customer base. We
have significant opportunities to further leverage the critical role that our solutions play in our customers’ operations by
increasing the adoption of our on demand property management systems and software-enabled value-added services within
our existing customer base, and we intend to actively focus on up-selling and cross-selling our solutions to our customers.
Add new solutions to our platform. We believe that we offer the most comprehensive platform of on demand software
solutions for the rental housing industry. The breadth of our platform enables our customers to control many aspects of the
residential rental property management process. We have a unique opportunity to add new capabilities that further enhance
our platform, and we intend to continue developing and introducing new solutions to sell to both new and existing customers.
These solutions may include localized solutions to support our customers as they grow their international operations. We also
intend to develop new relationships with third-party application providers that can use our open architecture to offer
additional product and service capabilities to their customers through the use of our platform.
Pursue acquisitions of complementary businesses, products and technologies. Since March 2005, we have completed 18
acquisitions that have enabled us to expand our platform, enter into new rental property markets and expand our customer
base. We intend to continue to selectively evaluate opportunities to acquire businesses and technologies that may help us
accomplish these and other strategic objectives.
Products and Services
Our platform consists of our property management systems as well as seven families of software-enabled value-added
services. These services provide complementary sales and marketing, asset optimization, risk mitigation, billing and utility
management and spend management capabilities that collectively enable our customers to manage the stages of the resident
lifecycle. Each of our property management systems and our software-enabled value-added services include multiple product
centers that provide distinct capabilities and can be licensed separately or as a bundled package. Each product center is
integrated with a central repository of prospect, resident and property data.
Our platform also includes a set of shared cloud services, including reporting, payment, document management and
training functionality that are common to all of our product families. Third-party applications can access our property
management systems using our RealExchange platform.
Our platform is designed to serve as a single system of record for all of the constituents of the rental housing ecosystem,
including owners, managers, prospects, residents and service providers, and to support the entire resident lifecycle, from
prospect to applicant to residency to post-residency. Common authentication, work flow and user experience across product
families enables each of these constituents to access different applications as appropriate for their role.
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We offer different versions of our platform for different types of properties. For example, our platform supports the
specific and distinct requirements of:
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conventional single-family properties (four units or less);
conventional multi-family properties (five or more units);
affordable Housing and Urban Development, or HUD, properties;
affordable tax credit properties;
rural housing properties;
privatized military housing;
student housing; and
senior living.
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Property Management Systems
Our property management systems are typically referred to as Enterprise Resource Planning, or ERP, systems. These
solutions manage core property management business processes, including leasing, accounting, purchasing and facilities
management, and include a central database of prospect, applicant, resident and property information that is accessible in real
time by our other solutions. Our property management systems also interface with most popular general ledger accounting
systems through our RealPageExchange platform. This makes it possible for customers to deploy our solutions using our
accounting system or a third-party accounting system.
OneSite
OneSite is our flagship on demand property management system for multi-family properties. OneSite includes 12
individual product centers. Six versions of OneSite are tailored to the specific needs of conventional multi-family, affordable
HUD, affordable tax credit, rural housing, privatized military housing and student housing.
Product Center
OneSite Leasing & Rents ...............................
OneSite Facilities ...........................................
OneSite Purchasing .......................................
OneSite Accounting .......................................
OneSite Budgeting .........................................
OneSite Online Leasing .................................
OneSite Online Living ....................................
Propertyware
Key Functionality
Prospects, generates, presents and records price quotations, generates
lease documents, schedules move-ins and posts financial transactions to
the resident ledger for both new residents and renewal of existing
resident leases. Eight versions support the unique needs of our target
residential rental markets.
Manages asset warranties, service requests and unit turnovers so that
when a resident moves out, the resident ledger is automatically updated
with any damages to be incorporated into the resident’s final account
statement.
Manages work orders and procurement activities and calculates operating
budget variances.
Provides back-office general ledger, accounts payable and cash
management functions. We license OneSite Accounting from a third-
party accounting software provider and have modified it to meet the
needs of the rental housing industry.
Enables owners and managers to budget property performance and
transfer budgets into the general ledger.
Enables owners and managers to utilize transaction widgets on their
property web site for checking availability, generating a price quote,
applying for residency and leasing an apartment online. Portions of the
Online Leasing Platform are powered by LeaseStar.
Provides a web site portal that enables residents to view community
events, enter or check the status of service requests, review statements,
pay rent online and renew leases.
Propertyware is our on demand property management system for single-family properties and small, centrally managed
multi-family properties. Propertyware consists of four product centers including accounting, maintenance and work order
management, marketing spend management and portal services. In addition, we offer our screening, renter’s insurance and
payment solutions through our Propertyware brand to single-family and small centrally managed multi-family properties.
Other Property Management Systems
We also offer six additional on premise property management systems — RentRoll, HUDManager, Tenant Pro, Spectra,
i-CAM, and Management Plus. RentRoll serves small conventional apartment communities. HUDManager serves small
HUD, Rural Housing Services and tax credit subsidized apartment communities. Tenant Pro serves the needs of small
conventional properties. Spectra is a conventional apartment and commercial modular property management system that
serves both the U.S. and the Canadian markets. i-CAM and Management Plus property management software automates and
streamlines rental activities for affordable housing.
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Most of our RentRoll and HUDManager on premise customers have migrated to our on demand property management
systems. Four of our additional on premise property management systems — Tenant Pro, Spectra, i-CAM and Management
Plus — were acquired in February 2010. Over time, we expect many customers of these on premise property management
systems to migrate to our on demand OneSite or Propertyware systems; however, we will continue to support our on premise
property management systems for the foreseeable future and integrate our software-enabled value-added services into them.
Collectively, our on premise property management systems represented 2.6% of our total revenue in 2011 and we
expect that our on premise property management systems, including the revenue attributable to the on premise property
management systems that we acquired in February 2010, will represent less than 5% of our total revenue in 2012.
Software-Enabled Value-Added Services
In addition to property management systems, we offer software-enabled value-added services consisting of seven
product families and 30 product centers that provide complementary sales and marketing, asset optimization, risk mitigation,
billing and utility management and spend management capabilities. Our software-enabled value-added services are tightly
integrated with our OneSite property management system, and we are actively integrating them with our other property
management systems.
LeaseStar (Multichannel Managed Marketing)
The LeaseStar product family is usually referred to as a multichannel managed marketing system. It includes product
centers that manage marketing and leasing operations and enable owners and managers to originate, capture, track, manage
and close more leads.
Product Center
LeaseStar Web Sites .......................................
LeaseStar Contact Center (1) ..........................
LeaseStar Marketing Center (2) ......................
Key Functionality
Expert property web site design with search engine optimized content
(including descriptions, photos, video or animated tours, 3D floor plans
and interactive site maps), mobile applications and online leasing
solutions.
Provides call and email routing technology and agent staffing on a
permanent or overflow basis to answer phone calls and emails from
prospects or residents. The LeaseStar Contact Center is powered by
Level One.
Provides tools and services to optimize multichannel marketing
campaigns from lead origination to lease close.
(1)
(2)
In November 2010, we acquired substantially all of the assets of Level One, a leading on demand apartment leasing
center in the United States. We have integrated Level One with our LeaseStar product family and continue to utilize
the Level One brand.
Consists of five product centers that provide lead tracking, lead management, syndication services, classified web site
posting services and an Internet listing service. Utilizing technology from Lead2Lease, lead tracking enables
customers to track all lead sources, whether originated by phone, email or through the Internet. Lead management
services maximize lead origination to lease close and integrate with popular property management systems.
Syndication solutions ensure content consistency across multiple advertising channels utilizing technology from
PropertyLinkOnline. MyNewPlace.com powers solutions that simplify the process of effectively managing Internet
listing campaigns across classified web sites and an Internet listing service.
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YieldStar (Asset Optimization Systems)
Rental housing property rents have traditionally been set by owners and managers based on their knowledge of the
market and other intangible or intuitive criteria. YieldStar is a scientific yield management system, similar to those used in
the airline and hotel industries, that enables owners and managers to optimize rents to achieve the overall highest yield, or
combination of rent and occupancy, at each property.
Product Center
YieldStar Price Optimizer ..............................
YieldStar Pricing Advisory Services ..............
MPF Research ...............................................
Key Functionality
Uses current customer and market data and statistically derived
supply/demand forecasts and price elasticity models to calculate and
present optimal prices for each rental unit.
Offers outsourced pricing management advisory services for owners and
managers who want to utilize Price Optimizer without incurring the costs
to staff and support it in-house.
Provides multi-family housing market research through a well-
established and trusted name in multi-family market intelligence. The
MPF Research database includes monthly and quarterly information on
occupancy and rents for approximately 45,275 rental housing properties
in the United States representing 322 defined metropolitan statistical
areas as of December 2011.
LeasingDesk (Risk Mitigation Systems)
LeasingDesk risk mitigation systems enable rental housing property owners and managers to reduce delinquency,
liability and property damage risk.
Product Center
LeasingDesk Screening ..................................
Criminal Background Services ......................
Credit Optimizer ............................................
LeasingDesk Insurance Services....................
Key Functionality
Evaluates an applicant’s credit using a scoring model calibrated to predict
resident default and payment behavior by leveraging our proprietary
database of resident rental payment history generated from our property
management systems.
Ascertains if a prospective resident has committed a crime or been
evicted from a previous apartment by accessing databases that are
aggregated from third-party data providers.
Allows owners and managers to optimize credit thresholds based on
occupancy levels and adjust deposit and rent amounts based on the
default risk of the resident in a yield neutral manner.
Offers liability and content protection renter’s insurance. Liability
policies protect owners and managers against financial loss due to
resident-caused damage, while content protection provides additional
coverage for a resident’s personal belongings in the event of loss.
Velocity (Utility Management Services)
Velocity offers a complete range of billing and utility management services.
Product Center
Convergent Resident Billing Services ............
Utility Invoice Processing Services ...............
Energy Recovery Services ..............................
Infrastructure Services ...................................
Key Functionality
Provides automated monthly invoicing services enabling owners and
managers to increase collections by sending each resident a monthly
invoice that combines rent, small balances and utility charges onto a
single invoice.
Provides utility invoice processing services to reduce invoice processing
costs, track utility costs and consumption trends and reduce late fees.
Provides automated utility billing services to enable owners and
managers to detect and collect utility costs that are the residents’
responsibility.
Provides contractor services to install electric, gas and water meters in
apartment communities through three individual product centers.
Velocity also provides consulting services to assist owners and managers
in implementing and managing energy, media, data and telecom services
at their communities.
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OpsTechnology (Spend Management Systems)
OpsTechnology offers spend management systems that enable owners and managers to better control costs.
Product Center
OpsBuyer .......................................................
OpsMarket .....................................................
OpsInvoice .....................................................
OpsAdvantage ................................................
OpsBid ...........................................................
Compliance Depot .........................................
Shared Cloud Services
Key Functionality
Integrates purchase orders, eProcurement, on site accounts payable,
automated workflow approval (including mobile approvals), budget and
spend limit control, centralized expense reporting tools and document
management through our on demand spend management tool.
Enables owners and managers to create private marketplaces to manage
the transactions between their properties and their preferred suppliers and
service providers through our on demand eProcurement solution.
Provides an on demand invoice management solution that centralizes the
processing of both electronic and paper invoices across the owner’s or
manager’s portfolio.
Offers negotiated discounts for selected vendors across several major
purchasing categories for owners and managers that are too small to
negotiate volume discounts.
Provides an on demand eProcurement system, bid management and
workflow to manage all documents associated with capital construction
and rehab projects.
Provides vendor compliance management including liability insurance
verification and certificate management, background checks and business
licensing through a credentialed vendor network.
We offer shared cloud services that are tightly integrated with our property management systems and software-enabled
valued added services.
Product Center
Portfolio Reporting ........................................
Document Management .................................
Payment Processing .......................................
Online Learning .............................................
Key Functionality
Aggregates the data from our other solutions and third-party applications
and gives owners and managers access to business critical reports and
actionable analytical information about the performance of their
properties.
Provides storage, retrieval, security and archiving of all documents and
forms associated with a property management company’s business
processes and procedures.
Enables owners and managers to collect rent and other payments
electronically from residents through check, money order, automated
clearing house, or ACH or credit/debit card.
Allows owners and managers to train geographically dispersed
employees in a cost-effective and timely fashion, and allows employees
to complete their coursework at their convenience.
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RealPage Senior Living
RealPage Senior Living is a completely integrated Care Management, Community Management and Marketing
Management platform that will help owners and managers attract more residents and improve the living and care experience
enjoyed by those residents.
Product Center
Care Management (1) .....................................
Community Management ...............................
Marketing Management .................................
Key Functionality
Enables clinical staff to measure the changing acuity of senior residents,
as well as a staffing plan to accurately price the delivery of care.
Powered by OneSite Senior, enables senior living owners and managers
to meet the unique needs of the senior living market, with modules for
accounting, census and billing, electronic payments, purchasing and
facilities.
Provides cost-effective marketing solutions, including lead tracking and
contact center services powered by Level One and a placement network
of care advisors powered by SeniorLiving.Net, OurParents.com,
MyNewPlace.com and affiliated web sites.
(1)
Utilizes technology from Vigilan, which was acquired in January 2012. The product center was a result of the launch
of RealPage Senior Living in February 2012.
The RealPage Cloud
We operate a robust application infrastructure, marketed to our customers as The RealPage Cloud, which supports the
delivery of our solutions and also allows owners and managers to outsource portions of their IT operations. The RealPage
Cloud operates over redundant 10 GBPS dedicated fiber links connecting data centers containing hundreds of servers and
multiple storage area networks. This architecture makes it possible to expand the data center incrementally with little or no
disruption as more users or additional applications are added. The RealPage Cloud consists of more than 2,514 virtual
servers, 461 physical servers and approximately 760 terabytes of data. The RealPage Cloud processes an average of
approximately 23.0 million transactions per day and, at peak times, supports approximately 79,000 unique users.
The RealPage Cloud is based on an open architecture that enables third-party applications to access OneSite and other
applications hosted in the RealPage Cloud through our RealPage Exchange Platform that provides access to more than 100
different public and private web services and XML gateways that are used to import and export data through third party
Application Program Interfaces (APIs) and process hundreds of thousands of transactions per day. RealPage Exchange also
enables our cloud services to access and interface with third-party property management systems as well as our software-
enabled value-added services.
In addition, our system is designed to replicate data into a Universal Data Store, or UDS, each day. Access to UDS is
enabled through an access layer called UDS Direct, which enables customers to build portfolio reports, dashboards and alerts
using any Open Database Connectivity or Java Database Connectivity compliant report writer tool such as Microsoft Excel,
Microsoft Access, Microsoft SQL Server Reporting Service or Crystal Reports. UDS is also transmitted to a number of our
larger customers each night to feed portfolio reporting systems that they have built internally.
As of December 31, 2011, we employed approximately 88 professionals who are responsible for maintaining data
security, integrity, availability, performance and business continuity in our cloud computing facilities. We annually conduct
SSAE 16 SOC 1 Type 2 reviews. Certain customers conduct separate business continuity audits of their own.
In addition to our production data centers, we manage a separate development and quality assurance testing facility used
to control the pre-production testing required before each new release of our on demand software. We typically deploy new
releases of the software underlying our on demand software solutions on a monthly or quarterly schedule depending on the
solution.
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Professional Services
We have developed repeatable, cost-effective consulting and implementation services to assist our customers in taking
advantage of the capabilities enabled by our platform. Our consulting and implementation methodology leverages the nature
of our on demand software architecture, the industry-specific expertise of our professional services employees and the design
of our platform to simplify and expedite the implementation process. Our consulting and implementation services include
project and application management procedures, business process evaluation, business model development and data
conversion. Our consulting teams work closely with customers to ensure the smooth transition and operation of our systems.
We also offer a variety of training programs through our Online Learning Services for training administrators and onsite
property managers on the use of our solutions and on current issues in the property management industry. Training options
include regularly hosted classroom and online instruction (through our online learning courseware) as well as online
seminars, or webinars. We also enable our customers to integrate their own training content with our content to deliver an
integrated and customized training program for their on-site property managers.
Product Support
We offer product support services that provide our customers with assistance from our product support professionals by
phone or email in resolving issues with our solutions. We offer three product support options: Standard, Frontline and
Platinum. The Standard option includes product support during business hours. The Frontline option includes the features of
the Standard option plus escalation to senior support representatives. The Platinum option includes the features of the
Frontline option plus emergency product support on Saturdays and a designated senior product support liaison. Technology
support is also available for consultations on firewalls, communications, security measures (including virus alerts),
workstation configuration and disaster recovery options.
We also sponsor the RealPage User Group to facilitate communications between us and our community of users. The
RealPage User Group is governed by a steering committee of our customers, which consists of two elected positions and
subcommittee chairs, each representing a RealPage product center or group of product centers.
Product Development
We devote a substantial portion of our resources to developing new solutions and enhancing existing solutions,
conducting product testing and quality assurance testing, improving core technology and strengthening our technological
expertise in the rental housing industry. We typically deploy new releases of the software underlying our on demand software
solutions on a monthly or quarterly schedule depending on the solution. As of December 31, 2011, our product development
group consisted of 302 employees in the United States and 93 employees located in India, Canada and the Philippines.
Product development expense totaled $44.6 million, $36.9 million and $27.4 million for 2011, 2010 and 2009, respectively.
Sales and Marketing
We sell our software and services through our direct sales organization. As of December 31, 2011, we employed 163
sales representatives. We organize our sales force by geographic region, size of our prospective customers and property type.
This focus provides a higher level of service and understanding of our customers’ unique needs. Our typical sales cycle with
a prospective customer begins with the generation of a sales lead through Internet marketing, tele-sales efforts, trade shows or
other means of referral. The sales lead is followed by an assessment of the prospective customer’s requirements, sales
presentations and product demonstrations. Our sales cycle can vary substantially from customer to customer, but typically
requires three to six months for larger customers and one to six weeks for smaller customers.
In addition to new customer sales, we sell additional solutions and consulting services to our existing customers to help
them more efficiently and effectively manage their properties as the rental housing market evolves and competitive
conditions change.
We generate customer leads, accelerate sales opportunities and build brand awareness through our marketing programs.
Our marketing programs target property management company executives, technology professionals and senior business
leaders. Our marketing team focuses on the unique needs of customers within our target markets. Our marketing programs
include the following activities:
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field marketing events for customers and prospects;
participation in, and sponsorship of, user conferences, trade shows and industry events;
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customer programs, including user meetings and our online customer community;
online marketing activities, including email campaigns, online advertising, web campaigns, webinars and use of
social media, including blogging, Facebook, and Twitter;
public relations; and
use of our website to provide product and company information, as well as learning opportunities for potential
customers.
We host our annual user conference where customers both participate in and deliver a variety of programs designed to
help accelerate business performance through the use of our integrated platform of solutions. The conference features a
variety of customer speakers, panelists and presentations focused on businesses of all sizes. The event also brings together
our customers, technology vendors, service providers and other key participants in the rental housing industry to exchange
ideas and best practices for improving business performance. Attendees gain insight into our product plans and participate in
interactive sessions that give them the opportunity to provide input into new features and functionality.
Strategic Relationships
We maintain relationships with a variety of technology vendors and service providers to enhance the capabilities of our
integrated platform of solutions. This approach allows us to expand our platform and customer base and to enter new
markets. We have established the following types of strategic relationships:
Technology Vendors
We have relationships with a number of leading technology companies whose products we integrate into our platform or
offer to complement our solutions. The cooperative relationships with our software and hardware technology partners allow
us to build, optimize and deliver a broad range of solutions to our customers.
Service Providers
We have relationships with a number of service providers that offer complementary services that integrate into our
platform and address key requirements of rental property owners and managers, including credit card and ACH services,
transaction processing capabilities and insurance underwriting services.
Customers
We are committed to developing long-term customer relationships and working closely with our customers to configure
our solutions to meet the evolving needs of the rental housing industry. Our customers include REITs, leading property
management companies, fee managers, regionally based owner operators and service providers. As of December 31, 2011,
we had approximately 7,800 customers who used one or more of our on demand software solutions to help manage the
operations of approximately 7.3 million rental housing units. Our customers include each of the ten largest multi-family
property management companies in the United States, ranked as of January 1, 2011 by the National Multi Housing Council,
based on number of units managed. For the years ended December 31, 2011, 2010 and 2009, no one customer accounted for
more than 5% of our revenue.
See Note 2 of the Notes to Consolidated Financial Statements for the year ended December 31, 2011 for further
information regarding measurement of our international revenue and location of our long-lived assets.
Competition
We face competition primarily from point solution providers including traditional software vendors and other on
demand software providers. To a lesser extent, we also compete with internally developed and maintained solutions. Our
competitors vary depending on our solution. Our current principal competitors include:
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in the multi-family ERP market, AMSI Property Management (owned by Infor Global Solutions, Inc.), MRI
Software LLC and Yardi Systems, Inc. and, in the single-family ERP market, AppFolio, Inc., DIY Real Estate
Solutions (acquired by Yardi Systems, Inc.), Buildium, LLC, Rent Manger (owned by London Computer Systems,
Inc.) and PropertyBoss Solutions, LLC;
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in the applicant screening market, ChoicePoint Inc. (a subsidiary of Reed Elsevier Group plc), CoreLogic, Inc
(formerly First Advantage Corporation, an affiliate of the First American Corporation), TransUnion Rental
Screening Solutions, Inc. (a subsidiary of TransUnion LLC) and Yardi Systems, Inc. (following its acquisition of
RentGrow Inc., an applicant screening provider), On-Site.com and many other smaller regional and local
screening companies;
in the insurance market, Assurant, Inc., Bader Company, CoreLogic, Inc. and a number of national insurance
underwriters (including GEICO Corporation, The Allstate Corporation, State Farm Fire and Casualty Company,
Farmers Insurance Exchange, Nationwide Mutual Insurance Company and United Services Automobile
Association) that market renters insurance;
in the CRM market, contact center and call tracking service providers Call Source Inc., Yardi Systems, Inc. (which
announced its intention to build a call center) and numerous regional and local call centers, lead tracking solution
providers Call Source, Inc. Lead Tracking Solutions (a division of O.C. Concepts, Inc.) and Who’s Calling, Inc.,
content syndication providers Realty DataTrust Corporation (acquired by MRI Software LLC), RentSentinel.com
(owned by Yield Technologies, Inc.), rentbits.com, Inc. and companies providing web portal services, including
Apartments24-7.com, Inc., Ellipse Communications, Inc., Property Solutions International, Inc., Spherexx.com,
Yardi Systems, Inc., Internet listing sources and many other smaller web portal designers;
in the marketing services market, we compete with G5 Search Marketing, Inc, Spherexx LLC, ReachLocal, Inc.,
Property Solutions International, Inc. and Yodle, Inc.;
in the utility billing market, American Utility Management, Inc., Conservice, LLC, ista North America, Inc., NWP
Services Corporation, Yardi Systems, Inc. (following its acquisition of Energy Billing Systems, Inc.) and many
other smaller regional or local utilities;
in the revenue management market, The Rainmaker Group, Inc. and Yardi Systems, Inc.;
in the spend management market, SiteStuff, Inc. (owned by Yardi Systems, Inc.), AvidXchange, Inc., Nexus
Systems, Inc., Oracle Corporation; and
in the payment processing space, Chase Paymentech Solutions, LLC (a subsidiary of JPMorgan Chase & Co.),
First Data Corporation, Fiserv, Inc., MoneyGram International, Inc., NWP Services Corporation, Property
Solutions International, Inc., RentPayment.com (a subsidiary of Yapstone, Inc.), Yardi Systems, Inc. and a number
of national banking institutions;
in the Internet listing service market, we compete with ForRent (a division of Dominium Enterprises), Apartment
Guide (a division of Primedia Inc.), Rent.com (a division of eBay Inc.), Apartments.com (a division of Classified
Ventures, LLC, Apartment Finder (a division of Network Communications, Inc.), Zillow, Inc. and Move, Inc.;
in the Senior Living market, we compete against A Place for Mom, Inc., SeniorsForLiving, Inc., Care.com, Inc.,
Caring, Inc., Care Patrol Franchise Systems, LLC, Aging with Grace, LLC and SeniorHomes.com (owned by
Moseo, Corp.).
The principal competitive factors in our industry include total cost of ownership, level of integration with property
management systems, ease of implementation, product functionality and scope, performance, security, scalability and
reliability of service, brand and reputation, sales and marketing capabilities and financial resources of the provider. We
believe that we compete favorably with our competitors on the basis of these factors. We also believe that none of our more
significant competitors currently offer a more comprehensive or integrated on demand software solution. However, some of
our existing competitors have greater name recognition, longer operating histories, larger installed customer bases, larger
sales and marketing budgets, as well as greater financial, technical and other resources.
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Intellectual Property
We rely on a combination of copyright, trademark and trade secret laws, as well as confidentiality procedures and
contractual restrictions, to establish and protect our proprietary rights. These laws, procedures and restrictions provide only
limited protection. We currently have no issued patents or pending patent applications. In the future, we may file patent
applications, but patents may not be issued with respect to these patent applications, or if patents are issued, they may not
provide us with any competitive advantages, may not be issued in a manner that gives us the protection that we seek and may
be successfully challenged by third parties.
We endeavor to enter into agreements with our employees and contractors and with parties with whom we do business
in order to limit access to and disclosure of our proprietary information. We cannot be certain that the steps we have taken
will prevent unauthorized use or reverse engineering of our technology. Moreover, others may independently develop
technologies that are competitive with ours or that infringe on our intellectual property. The enforcement of our intellectual
property rights also depends on any legal actions against these infringers being successful, but these actions may not be
successful, even when our rights have been infringed.
Furthermore, effective patent, trademark, trade dress, copyright and trade secret protection may not be available in
every country in which our solutions are available over the Internet. In addition, the legal standards relating to the validity,
enforceability and scope of protection of intellectual property rights are uncertain and still evolving.
Employees
As of December 31, 2011, we had 2,273 employees. We consider our current relationship with our employees to be
good. Our employees are not represented by a labor union and are not subject to a collective bargaining agreement.
Available Information
We maintain an internet website under the name www.realpage.com. We make available, free of charge, on our website,
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports, as soon as reasonably practicable after providing such reports to the SEC.
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements
and other documents with the SEC under the Securities Exchange Act, as amended. The public may read and copy any
materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington DC 20549. The
public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also,
the SEC maintains an internet website that contains reports, proxy and information statements and other information
regarding issuers, including RealPage, Inc., that file electronically with the SEC. The public can obtain any document we file
with the SEC at www.sec.gov. Information contained on, or connect to, our website is not incorporated by reference into this
Form 10-K and should not be considered part of this report or any other filing that we make with the SEC.
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Item 1A. Risk Factors
Risks Related to Our Business
Our quarterly operating results have fluctuated in the past and may fluctuate in the future, which could cause our stock
price to decline.
Our quarterly operating results may fluctuate as a result of a variety of factors, many of which are outside of our control.
Fluctuations in our quarterly operating results may be due to a number of factors, including the risks and uncertainties
discussed elsewhere in this filing. Some of the important factors that could cause our revenues and operating results to
fluctuate from quarter to quarter include:
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the extent to which on demand software solutions maintain current and achieve broader market acceptance;
our ability to timely introduce enhancements to our existing solutions and new solutions;
our ability to increase sales to existing customers, attract new customers and retain existing customers;
changes in our pricing policies or those of our competitors;
the variable nature of our sales and implementation cycles;
general economic, industry and market conditions in the rental housing industry that impact the financial condition
of our current and potential customers;
the amount and timing of our investment in research and development activities;
technical difficulties, service interruptions, data or document losses or security breaches;
Internet usage trends among consumers, and the methodologies internet search engines utilized to direct those
consumers to websites such as in our LeaseStar product family;
our ability to hire and retain qualified key personnel, including the rate of expansion of our sales force and IT
department;
changes in the legal, regulatory or compliance environment related to the rental housing industry, including
without limitation fair credit reporting, payment processing, privacy, utility billing, insurance, the Internet, e-
commerce, licensing, HIPAA and HITECH;
the amount and timing of operating expenses and capital expenditures related to the expansion of our operations
and infrastructure;
the timing of revenue and expenses related to recent and potential acquisitions or dispositions of businesses or
technologies;
our ability to integrate acquisition operations in a cost-effective and timely manner;
litigation and settlement costs, including unforeseen costs;
public company reporting requirements; and
new accounting pronouncements and changes in accounting standards or practices, particularly any affecting the
recognition of subscription revenue or accounting for mergers and acquisitions.
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Fluctuations in our quarterly operating results or guidance that we provide may lead analysts to change their long-term
model for valuing our common stock, cause us to face short-term liquidity issues, impact our ability to retain or attract key
personnel or cause other unanticipated issues, all of which could cause our stock price to decline. As a result of the potential
variations in our quarterly revenue and operating results, we believe that quarter-to-quarter comparisons of our revenues and
operating results may not be meaningful and the results of any one quarter should not be relied upon as an indication of future
performance.
We have a history of operating losses and may not maintain profitability in the future.
We have not been consistently profitable on a quarterly or annual basis. Although we had net income for the years
ended December 31, 2010 and 2009, we experienced net losses of $1.2 million, $3.2 million and $3.1 million in 2011, 2008
and 2007, respectively. Net income for 2009 included a discrete tax benefit of approximately $27.0 million as a result of our
net deferred tax assets valuation allowance. As of December 31, 2011, our accumulated deficit was $91.0 million. While we
have experienced significant growth over recent quarters, we may not be able to sustain or increase our growth or
profitability in the future. We expect to make significant future expenditures related to the development and expansion of our
business. As a result of increased general and administrative expenses due to the additional operational and reporting costs
associated with being a public company, we will need to generate and sustain increased revenue to achieve future profitability
expectations. We may incur significant losses in the future for a number of reasons, including the other risks and
uncertainties described in this filing. Additionally, we may encounter unforeseen operating expenses, difficulties,
complications, delays and other unknown factors that may result in losses in future periods. If these losses exceed our
expectations or our growth expectations are not met in future periods, our financial performance will be affected adversely.
If we are unable to manage the growth of our diverse and complex operations, our financial performance may suffer.
The growth in the size, dispersed geographic locations, complexity and diversity of our business and the expansion of
our product lines and customer base has placed, and our anticipated growth may continue to place, a significant strain on our
managerial, administrative, operational, financial and other resources. We increased our number of employees from 654 as of
December 31, 2007 to 2,273 as of December 31, 2011. We increased our number of on demand customers from 2,199 as of
December 31, 2007 to approximately 7,800 as of December 31, 2011. We increased the number of on demand product
centers that we offer from 25 as of December 31, 2007 to 46 as of December 31, 2011. In addition, in the past, we have
grown and expect to continue to grow through acquisitions. Our ability to effectively manage our anticipated future growth
will depend on, among other things, the following:
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successfully supporting and maintaining a broad range of solutions;
maintaining continuity in our senior management and key personnel;
attracting, retaining, training and motivating our employees, particularly technical, customer service and sales
personnel;
enhancing our financial and accounting systems and controls;
enhancing our information technology infrastructure, processes and controls; and
managing expanded operations in geographically dispersed locations.
If we do not manage the size, complexity and diverse nature of our business effectively, we could experience product
performance issues, delayed software releases and longer response times for assisting our customers with implementation of
our solutions and could lack adequate resources to support our customers on an ongoing basis, any of which could adversely
affect our reputation in the market and our ability to generate revenue from new or existing customers.
The nature of our platform is complex and highly integrated, and if we fail to successfully manage releases or integrate
new solutions, it could harm our revenues, operating income and reputation.
We manage a complex platform of solutions that consists of our property management systems, integrated software-
enabled value-added services and web-based advertising and lease generation services. Many of our solutions include a large
number of product centers that are highly integrated and require interoperability with other RealPage products, as well as
products and services of third-party service providers. Additionally, we typically deploy new releases of the software
underlying our on demand software solutions on a bi-weekly, monthly or quarterly schedule depending on the solution. Due
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to this complexity and the condensed development cycles under which we operate, we may experience errors in our software,
corruption or loss of our data or unexpected performance issues from time to time. For example, our solutions may face
interoperability difficulties with software operating systems or programs being used by our customers, or new releases,
upgrades, fixes or the integration of acquired technologies may have unanticipated consequences on the operation and
performance of our other solutions. If we encounter integration challenges or discover errors in our solutions late in our
development cycle, it may cause us to delay our launch dates. Any major integration or interoperability issues or launch
delays could have a material adverse effect on our revenues, operating income and reputation.
Our business depends substantially on customers renewing and expanding their subscriptions for our solutions and any
increase in customer cancellations or decline in customer renewals or expansions would harm our future operating
results.
With the exception of some of our LeaseStar and Propertyware solutions, which are typically month-to-month, we
generally license our solutions pursuant to customer agreements with a term of one year. Our customers have no obligation to
renew these agreements after their term expires, or to renew these agreements at the same or higher annual contract value. In
addition, under specific circumstances, our customers have the right to cancel their customer agreements before they expire,
for example, in the event of an uncured breach by us, or in some circumstances, by giving 30 days’ notice or paying a
cancellation fee. In addition, customers often purchase a higher level of professional services in the initial term than they do
in renewal terms to ensure successful activation. As a result, our ability to grow is dependent in part on customers purchasing
additional solutions or professional services after the initial term of their customer agreement. Though we maintain and
analyze historical data with respect to rates of customer renewals, upgrades and expansions, those rates may not accurately
predict future trends in customer renewals. Our customers’ renewal rates may decline or fluctuate for a number of reasons,
including, but not limited to, their level of satisfaction with our solutions, our pricing, our competitors’ pricing, reductions in
our customers’ spending levels or reductions in the number of units managed by our customers. Additionally, we believe one
of our competitors, Yardi, is able to exert significant coercive power over its large customer base because of the high
switching costs its customers face and that it uses this coercive power to require its customers to sign agreements that prohibit
the Yardi customers from using the products and services of competing property management software providers, including
RealPage. We have filed federal claims to enjoin Yardi from this anticompetitive practice. That suit is described in Item 1
herein. If our customers cancel or amend their agreements with us during their term, do not renew their agreements, renew on
less favorable terms or do not purchase additional solutions or professional services in renewal periods, our revenue may
grow more slowly than expected or decline and our profitability may be harmed.
Additionally, we have experienced, and expect to continue to experience, some level of customer turnover as properties
are sold and the new owners and managers of properties previously owned or managed by our customers do not continue to
use our solutions. We cannot predict the amount of customer turnover we will experience in the future. However, we have
experienced slightly higher rates of customer turnover with our recently acquired Propertyware property management system,
primarily because it serves smaller properties than our OneSite property management system, and we may experience higher
levels of customer turnover to the extent Propertyware grows as a percentage of our revenues. If we experience increased
customer turnover, our financial performance and operating results could be adversely affected.
We have also experienced, and expect to continue to experience, some number of consolidations of our customers with
other parties. If one of our customers consolidates with a party who is not a customer, our customer may decide not to
continue to use our solutions. In addition, if one of our customers is consolidated with another customer, the acquiring
customer may have negotiated lower prices for our solutions or may use fewer of our solutions than the acquired customer. In
each case, the consolidated entity may attempt to negotiate lower prices for using our solutions as a result of their increased
size. These consolidations may cause us to lose customers or require us to reduce prices as a result of enhanced customer
leverage, which could cause our financial performance and operating results to be adversely affected.
Because we generally recognize subscription revenue over the term of the applicable customer agreement, a decline in
subscription renewals or new service agreements may not be reflected immediately in our operating results.
We generally recognize revenue from customers ratably over the terms of their customer agreements which, with the
exception of our month-to-month advertising, lease generation and Propertyware agreements, are typically one year. As a
result, much of the revenue we report in each quarter is deferred revenue from customer agreements entered into during
previous quarters. Consequently, a decline in new or renewed customer agreements in any one quarter will not be fully
reflected in our revenue or our results of operations until future periods. Accordingly, this revenue recognition model also
makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new
customers must be recognized over the applicable subscription term.
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We may not be able to continue to add new customers and retain and increase sales to our existing customers, which
could adversely affect our operating results.
Our revenue growth is dependent on our ability to continually attract new customers while retaining and expanding our
service offerings to existing customers. Growth in the demand for our solutions may be inhibited and we may be unable to
sustain growth in our customer base for a number of reasons, including, but not limited to:
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our failure to develop new or additional solutions:
our inability to market our solutions in a cost-effective manner to new customers or in new vertical or geographic
markets;
our inability to expand our sales to existing customers;
the inability of our LeaseStar product family to grow traffic to its websites, resulting in lower levels of lead and
lease/move-in traffic to customers;
our inability to build and promote our brand;
perceived security, integrity, reliability, quality or compatibility problems with our solutions; and
Yardi’s interference with our existing and prospective customer relationships, including its coercive use of
agreements requiring its locked-in customer base not to use our products and services.
A substantial amount of our past revenue growth was derived from purchases of upgrades and additional solutions by
existing customers. Our costs associated with increasing revenue from existing customers are generally lower than costs
associated with generating revenue from new customers. Therefore, a reduction in the rate of revenue increase from our
existing customers, even if offset by an increase in revenue from new customers, could reduce our profitability and have a
material adverse effect on our operating results.
If we are not able to integrate past or future acquisitions successfully, our operating results and prospects could be
harmed.
We have acquired new technology and domain expertise through multiple acquisitions, including our most recent
acquisitions of Compliance Depot in May 2011, SeniorLiving.net in July 2011, Multifamily Technology Solutions, Inc. in
August 2011 and Vigilan, Inc. in January 2012. We expect to continue making acquisitions. The success of our future
acquisition strategy will depend on our ability to identify, negotiate, complete and integrate acquisitions. Acquisitions are
inherently risky, and any acquisitions we complete may not be successful. Any acquisitions we pursue would involve
numerous risks, including the following:
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difficulties in integrating and managing the operations and technologies of the companies we acquire;
diversion of our management’s attention from normal daily operations of our business;
our inability to maintain the key employees, the key business relationships and the reputations of the businesses
we acquire;
the acquisitions may generate insufficient revenue to offset our increased expenses associated with acquisitions;
our responsibility for the liabilities of the businesses we acquire, including, without limitation, liabilities arising
out of their failure to maintain effective data security, data integrity, disaster recovery and privacy controls prior to
the acquisition;
difficulties in complying with new regulatory standards to which we were not previously subject;
delays in our ability to implement internal standards, controls, procedures and policies in the businesses we
acquire; and
adverse effects of acquisition activity on the key performance indicators we use to monitor our performance as a
business.
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Our current acquisition strategy includes the acquisition of companies that offer property management systems that may
not interoperate with our software-enabled value-added services. In order to integrate and fully realize the benefits of such
acquisitions, we expect to build application interfaces that enable such customers to use a wide range of our solutions while
they continue to use their legacy management systems. In addition, over time we expect to migrate the acquired company’s
customers to our on demand property management systems to retain them as customers and to be in a position to offer them
our solutions on a cost-effective basis. These efforts may be unsuccessful or entail costs that result in losses or reduced
profitability.
We may be unable to secure the equity or debt funding necessary to finance future acquisitions on terms that are
acceptable to us, or at all. If we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders
will likely experience ownership dilution, and if we finance future acquisitions with debt funding, we will incur interest
expense and may have to comply with additional financing covenants or secure that debt obligation with our assets.
If we are unable to successfully develop or acquire and sell enhancements and new solutions, our revenue growth will
be harmed and we may not be able to meet profitability expectations.
The industry in which we operate is characterized by rapidly changing customer requirements, technological
developments and evolving industry standards. Our ability to attract new customers and increase revenue from existing
customers will depend in large part on our ability to successfully develop, bring to market and sell enhancements to our
existing solutions and new solutions that effectively respond to the rapid changes in our industry. Any enhancements or new
solutions that we develop or acquire may not be introduced to the market in a timely or cost-effective manner and may not
achieve the broad market acceptance necessary to generate the revenue required to offset the operating expenses and capital
expenditures related to development or acquisition. If we are unable to timely develop or acquire and sell enhancements and
new solutions that keep pace with the rapid changes in our industry, our revenue will not grow as expected and we may not
be able to maintain or meet profitability expectations.
We derive a substantial portion of our revenue from a limited number of our solutions and failure to maintain demand
for these solutions or diversify our revenue base through increasing demand for our other solutions could negatively
affect our operating results.
Historically, a majority of our revenue was derived from sales of our OneSite property management system and our
LeasingDesk software-enabled value-added service. If we are unable to develop enhancements to these solutions to maintain
demand for these solutions or to diversify our revenue base by increasing demand for our other solutions, our operating
results could be negatively impacted.
We use a small number of data centers to deliver our solutions. Any disruption of service at our facilities could interrupt
or delay our customers’ access to our solutions, which could harm our operating results.
The ability of our customers to access our service is critical to our business. We currently serve a majority of our
customers from a primary data center located in Carrollton, Texas. We also maintain a secondary data center in downtown
Dallas, Texas, approximately 20 miles from our primary data center. Services of our most recent acquisitions are provided
from data centers located in San Francisco, California, South Carolina, Texas, Winnipeg, Canada, Milwaukee, Wisconsin and
Atlanta, Georgia, many of which are operated by third party data vendors. We plan to maintain a data center in San Francisco
for LeaseStar and certain other solutions and intend to migrate all other data services to our primary and secondary data
centers in Carrollton and Dallas. Until this migration is complete, we have no assurances that the policies and procedures in
place at our Carrollton and Dallas data centers will be followed at data centers operated by third party vendors. Any event
resulting in extended interruption or delay in our customers’ access to our services or their data could harm our operating
results. There can be no certainty that the measures we have taken to eliminate single points of failure in the primary and
secondary data centers will be effective to prevent or minimize interruptions to our operations. Our facilities are vulnerable to
interruption or damage from a number of sources, many of which are beyond our control, including, without limitation:
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extended power loss;
telecommunications failures from multiple telecommunication or other internet service providers;
natural disaster or an act of terrorism;
software and hardware errors, or failures in our own systems or in other systems;
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network environment disruptions such as computer viruses, hacking and similar problems in our own systems and
in other systems;
theft and vandalism of equipment;
actions or events arising from human error; and
actions or events caused by or related to third parties.
The occurrence of an extended interruption of services at one or more of our data centers could result in lengthy
interruptions in our services. Since January 1, 2007, we have experienced two extended service interruptions lasting more
than eight hours caused by equipment and hardware failures. Our service level agreements require us to refund a prorated
portion of the access fee if we fail to satisfy our service level commitments related to availability. Refunds for breach of this
service level commitment have resulted in immaterial payments to customers in the past. An extended service outage could
result in refunds to our customers and harm our customer relationships. In addition, under our some of our advertising and
lease generation agreements, we are generally paid for performance and would be unable to perform services under those
agreements in the event of a service interruption.
We attempt to mitigate these risks at our data centers through various business continuity efforts, including redundant
infrastructure, 24 x 7 x 365 system activity monitoring, backup and recovery procedures, use of a secure off-site storage
facility for backup media, separate test systems and change management and system security measures, but our precautions
may not protect against all potential problems. Our secondary data center is equipped with physical space, power, storage and
networking infrastructure and Internet connectivity to support the solutions we provide in the event of the interruption of
services at our primary data center. Even with this secondary data center, however, our operations would be interrupted
during the transition process should our primary data center experience a failure. Moreover, both our primary and secondary
data centers are located in the greater metropolitan Dallas area. As a result, any regional disaster could affect both data
centers and result in a material disruption of our services.
For customers who specifically pay for accelerated disaster recovery services, we replicate their data from our primary
data center to our secondary data center with the necessary stand-by servers and disk storage available to provide services
within two hours of a disaster. This process is currently audited by some of our customers who pay for this service on an
annual basis. For customers who do not pay for such services, our current service level agreements with our customers
require that we provide disaster recovery within 72 hours.
Disruptions at our data centers could cause disruptions in our services and data or document loss or corruption. This
could damage our reputation, cause us to issue credits to customers, subject us to potential liability or costs related to
defending against claims or cause customers to terminate or elect not to renew their agreements, any of which could
negatively impact our revenues.
We provide service level commitments to our customers, and our failure to meet the stated service levels could
significantly harm our revenue and our reputation.
Our customer agreements provide that we maintain certain service level commitments to our customers relating
primarily to product functionality, network uptime, critical infrastructure availability and hardware replacement. For
example, our service level agreements generally require that our solutions are available 98% of the time during coverage
hours (normally 6:00 a.m. though 10:00 p.m. Central time daily) 365 days per year. If we are unable to meet the stated
service level commitments, we may be contractually obligated to provide customers with refunds or credits. Additionally, if
we fail to meet our service level commitments a specified number of times within a given time frame or for a specified
duration, our customers may terminate their agreement with us or extend the term of their agreement at no additional fee. As
a result, a failure to deliver services for a relatively short duration could cause us to issue credits or refunds to a large number
of affected customers or result in the loss of customers. In addition, we cannot assure you that our customers will accept these
credits, refunds, termination or extension rights in lieu of other legal remedies that may be available to them. Our failure to
meet our commitments could also result in substantial customer dissatisfaction or loss. Because of the loss of future revenues
through the issuance of credits or the loss of customers or other potential liabilities, our revenue could be significantly
impacted if we cannot meet our service level commitments to our customers.
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We face intense competitive pressures and our failure to compete successfully could harm our operating results.
The market for many of our solutions is intensely competitive, fragmented and rapidly changing. Some of these markets
have relatively low barriers to entry. With the introduction of new technologies and market entrants, we expect competition
to intensify in the future. Increased competition generally could result in pricing pressures, reduced sales and reduced
margins. Often we compete to sell our solutions against existing systems that our potential customers have already made
significant expenditures to install.
Our competitors vary depending on our product and service. In the market for property management software, or multi-
tenant enterprise resource planning (“ERP”), we face substantial competitive pressure from Yardi and its Voyager products.
Because of Yardi’s large installed customer base and the high switching costs they face, many customers are essentially
locked-in to Voyager. We also face competition from AMSI Property Management (owned by Infor Global Solutions, Inc.)
and MRI Software LLC. In the single-family market, our ERP systems compete primarily with AppFolio, Inc., DIY Real
Estate Solutions (recently acquired by Yardi Systems, Inc.), Buildium, LLC, Rent Manager (owned by London Computer
Systems, Inc.) and Property Boss Solutions, LLC.
In the market for vertically-integrated cloud computing for multifamily real estate owners and property managers (“the
vertical cloud market”), our only substantial competition is from Yardi. Our ability to compete in the vertical cloud market is
compromised by anticompetitive restrictions imposed by Yardi on its Voyager customers which prevent Voyager customers
from using the vertical cloud product of their choice.
We offer a number of software-enabled value-added services that compete with a disparate and large group of
competitors. In the applicant screening market, our principal competitors are ChoicePoint Inc. (a subsidiary of Reed Elsevier
Group plc), CoreLogic, Inc. (formerly First Advantage Corporation, an affiliate of The First American Corporation),
TransUnion Rental Screening Solutions, Inc. (a subsidiary of TransUnion LLC), Yardi Systems, Inc. (following its recent
acquisition of RentGrow Inc., an applicant screening provider), On-Site.com and many other smaller regional and local
screening companies. In the insurance market, our principal competitors are Assurant, Inc., Bader Company, CoreLogic, Inc.
and a number of national insurance underwriters (including GEICO Corporation, The Allstate Corporation, State Farm Fire
and Casualty Company, Farmers Insurance Exchange, Nationwide Mutual Insurance Company and United Services
Automobile Association) that market renters insurance. There are many smaller screening and insurance providers in the risk
mitigation area that we encounter less frequently, but they nevertheless present a competitive presence in the market.
In the customer relationship management, or CRM, market, we compete with providers of contact center and call
tracking services, including Call Source Inc., Yardi Systems, Inc. (which recently announced its intention to build a contact
center) and numerous regional and local contact centers. In addition, we compete with lead tracking solution providers,
including Call Source Inc., Lead Tracking Solutions (a division of O.C. Concepts, Inc.) and Who’s Calling, Inc. In addition,
we compete with content syndication providers Realty DataTrust Corporation (acquired by MRI Software, LLC),
RentSentinel.com (owned by Yield Technologies, Inc.), and rentbits.com, Inc. Finally, we compete with companies providing
web portal services, including Apartments24-7.com, Inc., Ellipse Communications, Inc., Property Solutions International,
Inc., Spherexx.com and Yardi Systems, Inc. Certain Internet listing services also offer websites for their customers, usually
as a free value add to their listing service.
In the marketing services market, we compete with G5 Search Marketing, Inc., Spherexx LLC, ReachLocal, Inc.,
Property Solutions International, Inc. and Yodle, Inc.
In the Internet listing service market, we compete with ForRent (a division of Dominium Enterprises), Apartment Guide
(a division of Primedia Inc.), Rent.com (a division of eBay Inc.), Apartments.com (a division of Classified Ventures, LLC,
Apartment Finder (a division of Network Communications, Inc.), Zillow, Inc. and Move, Inc.
In the Senior Living market, we compete against A Place for Mom, Inc., SeniorsForLiving, Inc., Care.com, Inc., Caring,
Inc., Care Patrol Franchise Systems, LLC, Aging with Grace, LLC and SeniorHomes.com (owned by Moseo, Corp.).
In the utility billing market, we compete at a national level with American Utility Management, Inc., Conservice, LLC,
ista North America, Inc., NWP Services Corporation and Yardi Systems, Inc. (following its recent acquisition of Energy
Billing Systems, Inc.). Many other smaller utility billing companies compete for smaller rental properties or in regional areas.
In the revenue management market, we compete with The Rainmaker Group, Inc. and Yardi Systems, Inc.
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In the spend management market, we compete with Site Stuff, Inc. (owned by Yardi Systems, Inc.), AvidXchange, Inc.,
Nexus Systems, Inc., Ariba, Inc. and Oracle Corporation.
In the payment processing market, we compete with Chase Paymentech Solutions, LLC (a subsidiary of JPMorgan
Chase & Co.), First Data Corporation, Fiserv, Inc., MoneyGram International, Inc., NWP Services Corporation, Property
Solutions International, Inc., RentPayment.com (a subsidiary of Yapstone, Inc.), Yardi Systems, Inc. and a number of
national banking institutions.
In addition, many of our existing or potential customers have developed or may develop their own solutions that may be
competitive with our solutions. We also may face competition for potential acquisition targets from our competitors who are
seeking to expand their offerings.
With respect to all of our competitors, we compete based on a number of factors, including total cost of ownership, level
of integration with property management systems, ease of implementation, product functionality and scope, performance,
security, scalability and reliability of service, brand and reputation, sales and marketing capabilities and financial resources.
Some of our existing competitors and new market entrants may enjoy substantial competitive advantages, such as greater
name recognition, longer operating histories, larger installed customer bases and larger sales and marketing budgets, as well
as greater financial, technical and other resources. In addition, any number of our existing competitors or new market entrants
could combine or consolidate to become a more formidable competitor with greater resources. As a result of such competitive
advantages, our existing and future competitors may be able to:
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develop superior products or services, gain greater market acceptance and expand their offerings more efficiently
or more rapidly;
adapt to new or emerging technologies and changes in customer requirements more quickly;
take advantage of acquisition and other opportunities more readily;
adopt more aggressive pricing policies and devote greater resources to the promotion of their brand and marketing
and sales of their products and services; and
devote greater resources to the research and development of their products and services.
If we are not able to compete effectively, our operating results will be harmed.
We integrate our software-enabled value-added services with competitive ERP applications for some of our customers.
Our application infrastructure, marketed to our customers as The RealPage Cloud, is based on an open architecture that
enables third-party applications to access and interface with applications hosted in The RealPage Cloud through our RealPage
Exchange platform. Likewise, through this platform our RealPage Cloud services are able to access and interface with other
third-party applications, including third-party property management systems. We also provide services to assist in the
implementation, training, support and hosting with respect to the integration of some of our competitors’ applications with
our solutions. We sometimes rely on the cooperation of our competitors to implement solutions for our customers. However,
frequently our reliance on the cooperation of our competitors can result in delays in integration. There is no assurance that
our competitors, even if contractually obligated to do so, will continue to cooperate with us or will not prospectively alter
their obligations to do so. We also occasionally develop interfaces between our software-enabled value-added services and
competitor ERP systems without their cooperation or consent. There is no assurance that our competitors will not alter their
applications in ways that inhibit integration or assert that their intellectual property rights restrict our ability to integrate our
solutions with their applications.
On January 24, 2011, Yardi Systems, Inc. filed a lawsuit in the U.S. District Court for the Central District of California
against RealPage, Inc. and DC Consulting, Inc. Yardi filed a First Amended Complaint on August 12, 2011. The lawsuit
alleges claims for relief for violation of the Computer Fraud and Abuse Act, violation of the California Comprehensive Data
Access and Fraud Act, violation of the Digital Millennium Copyright Act, copyright infringement, trade secret
misappropriation, unfair competition, and inducement of breach of contract. Yardi seeks injunctive relief, punitive damages,
recovery of all profits attributable to Defendants’ allegedly wrongful acts and infringements, statutory damages, exemplary
damages, prejudgment interest, and attorneys’ fees and costs. The First Amended Complaint alleges, among other things, that
RealPage took Yardi employee, client and independent consultant credentials and used them to access Yardi’s computer
system and steal Yardi’s trade secrets and copyrighted software, related support documentation, price lists and other
proprietary information. In addition, the First Amended Complaint alleges that RealPage improperly obtained administrative-
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level access to Yardi’s software and copied it onto RealPage’s servers for its own competitive purposes, used these
unauthorized software copies to discover the allegedly proprietary programming, functionality and feature set of Yardi’s
software, to compete unfairly against Yardi, to create unauthorized derivative works from Yardi’s software, and to enhance
RealPage’s own products and services. Yardi alleges that in doing so, and in offering to indemnify our customers, RealPage
induced Cloud customers to violate their confidentiality and other agreements with Yardi. On March 28, 2011, RealPage filed
an answer to Yardi’s Complaint, and on September 12, 2011, RealPage answered the First Amended Complaint. RealPage
has also filed counterclaims against Yardi, first in connection with its March 28 answer and then in First Amended
Counterclaims filed on May 18, 2011. On September 2, 2011, following the Court’s order granting in part and denying in part
Yardi’s motion to dismiss certain of RealPage’s causes of action without prejudice, RealPage filed Second Amended
Counterclaims. RealPage’s counterclaims allege that Yardi and its agents wrongfully obtained and used our trade secrets and
engaged in anti-competitive behavior with respect to certain of our clients. RealPage’s counterclaims seek relief for
misappropriation of trade secrets, Sherman Act (antitrust) violations and California Cartwright Act violations, intentional
interference with contract, intentional interference with prospective economic advantage, and violation of California’s unfair
competition statute. RealPage seeks damages, punitive damages, injunctive relief and all profits, gains and advantages that
Yardi received as a result of its wrongful conduct along with attorneys’ fees and costs. Yardi filed a Motion to Dismiss
RealPage’s Second Amended Counterclaims on September 30, 2011. On February 13, 2012, the Court denied Yardi’s motion
with respect to all claims except for a portion of one of our claims for intentional interference with contract, as to which
dismissal was granted. Accordingly, RealPage will move forward with its claims against Yardi. We currently expect trial in
this case to be scheduled for late September 2012. It is not possible to predict the outcome of this case, but we intend to
defend this case and pursue our counterclaims vigorously. However, even if we were successful in defending against Yardi’s
claims or in prevailing on our counterclaims, the proceedings could result in significant costs and divert our management’s
attention. Prior to filing this lawsuit, Yardi Systems, Inc. contacted us and certain of our customers and expressed concerns
about our hosting competitor applications in The RealPage Cloud and our performance of certain consulting services. We
believe that we are lawfully hosting and accessing Yardi’s applications in The RealPage Cloud for purposes authorized by
our customers and within our customers’ contractual rights. However, if Yardi or other competitors do not continue to
cooperate with us, alter their applications in ways that inhibit or restrict the integration of our solutions or assert that their
intellectual property rights restrict our ability to integrate our solutions with their applications and we are not able to find
alternative ways to integrate our solutions with our competitors’ applications, our business would be harmed. Yardi has also
expressed its concern that we may misappropriate its intellectual property by hosting its applications for our mutual
customers in The RealPage Cloud.
We face competition to attract consumers to our LeaseStar product websites and mobile applications, which could
impair our ability to continue to grow the number of users who use our websites and mobile applications, which would
harm our business, results of operations and financial condition.
The success of our LeaseStar product family depends in part on our ability to continue to attract additional consumers to
our websites and mobile applications. Our existing and potential competitors include companies that could devote greater
technical and other resources than we have available, have a more accelerated time frame for deployment and leverage their
existing user bases and proprietary technologies to provide products and services that consumers might view as superior to
our offerings. Any of our future or existing competitors may introduce different solutions that attract consumers or provide
solutions similar to our own but with better branding or marketing resources. If we are unable to continue to grow the number
of consumers who use our website and mobile applications, our business, results of operations and financial condition would
be harmed.
We may be unable to compete successfully against our existing or future competitors in attracting advertisers, which
could harm our business, results of operations and financial condition.
In our LeaseStar product family, we compete to attract advertisers with media sites, including websites dedicated to
providing real estate listings and other rental housing related services to real estate professionals and consumers, and major
Internet portals, general search engines and social media sites, as well as other online companies. We also compete for a
share of advertisers’ overall marketing budgets with traditional media such as television, magazines, newspapers and
home/apartment guide publications, particularly with respect to advertising dollars spent at the local level by real estate
professionals to advertise their qualifications and listings. Large companies with significant brand recognition have large
numbers of direct sales personnel and substantial proprietary advertising inventory and web traffic, which may provide a
competitive advantage. To compete successfully for advertisers against future and existing competitors, we must continue to
invest resources in developing our advertising platform and proving the effectiveness and relevance of our advertising
products and services. Pressure from competitors seeking to acquire a greater share of our advertisers’ overall marketing
budget could adversely affect our pricing and margins, lower our revenue, and increase our research and development and
marketing expenses. If we are unable to compete successfully against our existing or future competitors, our business,
financial condition or results of operations would be harmed.
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Variability in our sales and activation cycles could result in fluctuations in our quarterly results of operations and cause
our stock price to decline.
The sales and activation cycles for our solutions, from initial contact with a prospective customer to contract execution
and activation, vary widely by customer and solution. We do not recognize revenue until the solution is activated. While most
of our activations follow a set of standard procedures, a customer’s priorities may delay activation and our ability to
recognize revenue, which could result in fluctuations in our quarterly operating results.
Many of our customers are price sensitive, and if market dynamics require us to change our pricing model or reduce
prices, our operating results will be harmed.
Many of our existing and potential customers are price sensitive, and recent adverse global economic conditions have
contributed to increased price sensitivity in the multi-family housing market and the other markets that we serve. As market
dynamics change, or as new and existing competitors introduce more competitive pricing or pricing models, we may be
unable to renew our agreements with existing customers or customers of the businesses we acquire or attract new customers
at the same price or based on the same pricing model as previously used. As a result, it is possible that we may be required to
change our pricing model, offer price incentives or reduce our prices, which could harm our revenue, profitability and
operating results.
If we do not effectively expand and train our sales force, we may be unable to add new customers or increase sales to
our existing customers and our business will be harmed.
We continue to be substantially dependent on our sales force to obtain new customers and to sell additional solutions to
our existing customers. We believe that there is significant competition for sales personnel with the skills and technical
knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in
recruiting, training and retaining sufficient numbers of sales personnel to support our growth. New hires require significant
training and, in most cases, take significant time before they achieve full productivity. Our recent hires and planned hires may
not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in
the markets where we do business or plan to do business. If we are unable to hire and train sufficient numbers of effective
sales personnel, or the sales personnel are not successful in obtaining new customers or increasing sales to our existing
customer base, our business will be harmed.
Material defects or errors in the software we use to deliver our solutions could harm our reputation, result in significant
costs to us and impair our ability to sell our solutions.
The software applications underlying our solutions are inherently complex and may contain material defects or errors,
particularly when first introduced or when new versions or enhancements are released. We have from time to time found
defects in the software applications underlying our solutions and new errors in our existing solutions may be detected in the
future. Any errors or defects that cause performance problems or service interruptions could result in:
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a reduction in new sales or subscription renewal rates;
unexpected sales credits or refunds to our customers, loss of customers and other potential liabilities;
delays in customer payments, increasing our collection reserve and collection cycle;
diversion of development resources and associated costs;
harm to our reputation and brand; and
unanticipated litigation costs.
Additionally, the costs incurred in correcting defects or errors could be substantial and could adversely affect our
operating results.
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Failure to effectively manage the development of our solutions and data processing efforts outside the United States
could harm our business.
Our success depends, in part, on our ability to process high volumes of customer data and enhance existing solutions
and develop new solutions rapidly and cost effectively. We currently maintain an office in Hyderabad, India where we
employ development and data processing personnel. We recently opened an office in Manila, Philippines. We believe that
performing these activities in Hyderabad and Manila increases the efficiency and decreases the costs of our development and
data processing efforts. However, managing and staffing international operations requires management’s attention and
financial resources. The level of cost-savings achieved by our international operations may not exceed the amount of
investment and additional resources required to manage and operate these international operations. Additionally, if we
experience problems with our workforce or facilities in Hyderabad or Manila, our business could be harmed due to delays in
product release schedules or data processing services.
We rely on third-party technologies and services that may be difficult to replace or that could cause errors, failures or
disruptions of our service, any of which could harm our business.
We rely on a number of third-party providers, including, but not limited to, computer hardware and software vendors
and database providers, to deliver our solutions. We currently utilize equipment, software and services from Akami Inc.,
Avaya Inc., Cisco Systems, Inc., Compellent Technologies, Inc., Dell Inc., EMC Corporation, Microsoft Corporation, Oracle
Corporation and salesforce.com, inc., as well as many other smaller providers. Our OneSite Accounting service relies on a
SaaS-based accounting system developed and maintained by a third-party service provider. We host this application in our
data centers and provide supplemental development resources to extend this accounting system to meet the unique
requirements of the rental housing industry. Our shared cloud portfolio reporting service utilizes software licensed from IBM.
We expect to utilize additional service providers as we expand our platform. Although the third-party technologies and
services that we currently require are commercially available, such technologies and services may not continue to be
available on commercially reasonable terms, or at all. Any loss of the right to use any of these technologies or services could
result in delays in the provisioning of our solutions until alternative technology is either developed by us, or, if available, is
identified, obtained and integrated, and such delays could harm our business. It also may be time consuming and costly to
enter into new relationships. Additionally, any errors or defects in the third-party technologies we utilize or delays or
interruptions in the third-party services we rely on could result in errors, failures or disruptions of our services, which also
could harm our business.
We depend upon third-party service providers for important payment processing functions. If these third-party service
providers do not fulfill their contractual obligations or choose to discontinue their services, our business and operations
could be disrupted and our operating results would be harmed.
We rely on several large payment processing organizations to enable us to provide payment processing services to our
customers, including electronic funds transfers, or EFT, check services, bank card authorization, data capture, settlement and
merchant accounting services and access to various reporting tools. These organizations include Bank of America Merchant
Services, Paymentech, LLC, Jack Henry & Associates, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo, N.A. We also
rely on third-party hardware manufacturers to manufacture the check scanning hardware our customers utilize to process
transactions. Some of these organizations and service providers are competitors who also directly or indirectly sell payment
processing services to customers in competition with us. With respect to these organizations and service providers, we have
significantly less control over the systems and processes than if we were to maintain and operate them ourselves. In some
cases, functions necessary to our business are performed on proprietary third-party systems and software to which we have
no access. We also generally do not have long-term contracts with these organizations and service providers. Accordingly,
the failure of these organizations and service providers to renew their contracts with us or fulfill their contractual obligations
and perform satisfactorily could result in significant disruptions to our operations and adversely affect operating results. In
addition, businesses that we have acquired, or may acquire in the future, typically rely on other payment processing service
providers. We may encounter difficulty converting payment processing services from these service providers to our payment
processing platform. If we are required to find an alternative source for performing these functions, we may have to expend
significant money, time and other resources to develop or obtain an alternative, and if developing or obtaining an alternative
is not accomplished in a timely manner and without significant disruption to our business, we may be unable to fulfill our
responsibilities to customers or meet their expectations, with the attendant potential for liability claims, damage to our
reputation, loss of ability to attract or maintain customers and reduction of our revenue or profits.
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We face a number of risks in our payment processing business that could result in a reduction in our revenues and
profits.
In connection with our electronic payment processing services, we process resident payments and subsequently submit
these resident payments to our customers after varying clearing times established by RealPage. These payments are settled
through our sponsoring clearing bank, and in the case of EFT, our Originating Depository Financial Institution, or ODFI.
Currently, we rely on Wells Fargo, N.A. and JPMorgan Chase Bank, N.A. as our sponsoring clearing banks. In the future, we
expect to enter into similar sponsoring clearing bank relationships with one or more other national banking institutions. The
resident payments that we process for our customers at our sponsoring clearing bank are identified in our consolidated
balance sheets as restricted cash and the corresponding liability for these resident payments is identified as customer deposits.
Our electronic payment processing business and related maintenance of custodial accounts subjects us to a number of risks,
including, but not limited to:
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liability for customer costs related to disputed or fraudulent transactions if those costs exceed the amount of the
customer reserves we have during the clearing period or after resident payments have been settled to our
customers;
electronic processing limits on the amount of custodial balances that any single ODFI will underwrite;
reliance on clearing bank sponsors, card payment processors and other service payment provider partners to
process electronic transactions;
failure by us or our bank sponsors to adhere to applicable laws and regulatory requirements or the standards of the
electronic payments rules and regulations;
incidences of fraud, a security breach or our failure to comply with required external audit standards; and
our inability to increase our fees at times when electronic payment partners or associations increase their
transaction processing fees.
If any of these risks related to our electronic payment processing business were to occur, our business or financial
results could be negatively affected. Additionally, with respect to the processing of EFTs, we are exposed to financial risk.
EFTs between a resident and our customer may be returned for various reasons such as NSF, insufficient funds, stop payment
etc. These returns are charged back to the customer by us. However, if we or our sponsoring clearing banks are unable to
collect such amounts from the customer’s account or if the customer refuses or is unable to reimburse us for the chargeback,
we bear the risk of loss for the amount of the transfer. While we have not experienced material losses resulting from
chargebacks in the past, there can be no assurance that we will not experience significant losses from chargebacks in the
future. Any increase in chargebacks not paid by our customers may adversely affect our financial condition and results of
operations.
If our security measures are breached and unauthorized access is obtained to data that we store or transmit, we may
incur significant liabilities, our solutions may be perceived as not being secure and customers may curtail or stop using
our solutions.
The solutions we provide involve the collection, storage and transmission of confidential personal and proprietary
information regarding our customers and our customers’ current and prospective residents and business partners. Specifically,
we collect, store and transmit a variety of customer data such as demographic information and payment histories of our
customers’ prospective and current residents and business partners. Additionally, we collect and transmit sensitive financial
data such as credit card and bank account information. Treatment of certain types of data, such as personally identifiable
information, protected health information and sensitive financial data may be subject to federal of state regulations of
heightened privacy and security requirements. If our data security or data integrity measures are breached or otherwise fail or
prove to be inadequate for any reason, as a result of third-party actions or our employees’ or contractors’ errors or
malfeasance or otherwise, and unauthorized persons obtains access to this information, or the data is otherwise compromised,
we could incur significant liability to our customers and to their prospective or current residents or business partners,
significant costs associated with internal regulatory investigations and latigation, or significant fines and sanctions by
payment processing networks or governmental authorities. Any of these events or circumstances could result in damage to
our reputation and material harm to our business.
We also rely upon our customers as users of our system to promote security of the system and the data within it, such as
administration of customer-side access credentialing and control of customer-side display of data. On occasion, our
customers have failed to perform these activities in such a manner as to prevent unauthorized access to data. To date, these
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breaches have not resulted in claims against us or in material harm to our business, but we cannot be certain that the failure of
our customers in future periods to perform these activities will not result in claims against us, which could expose us to
potential litigation, damage to our reputation and material harm to our business.
There can be no certainty that the measures we have taken to protect the privacy and integrity of our customers’ and
their current or prospective residents’ and business partners’ data are adequate to prevent or remedy unauthorized access to
our system. Because techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and
generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement
adequate preventive measures. Experienced computer programmers seeking to intrude or cause harm, or hackers, may
attempt to penetrate our service infrastructure from time to time. A hacker who is able to penetrate our service infrastructure
could misappropriate proprietary or confidential information or cause interruptions in our services. We might be required to
expend significant capital and resources to protect against, or to remedy, problems caused by hackers, and we may not have a
timely remedy against a hacker who is able to penetrate our service infrastructure. In addition to purposeful breaches,
inadvertent actions or the transmission of computer viruses could expose us to security risks. If an actual or perceived breach
of our security occurs or if our customers and potential customers perceive vulnerabilities, the market perception of the
effectiveness of our security measures could be harmed, we could lose sales and customers and our business could be
materially harmed.
If we are unable to cost-effectively scale or adapt our existing architecture to accommodate increased traffic,
technological advances or changing customer requirements, our operating results could be harmed.
As we continue to increase our customer base, the number of users accessing our on demand software solutions over the
Internet will continue to increase. Increased traffic could result in slow access speeds and response times. Since our customer
agreements typically include service availability commitments, slow speeds or our failure to accommodate increased traffic
could result in breaches of our customer agreements. In addition, the market for our solutions is characterized by rapid
technological advances and changes in customer requirements. In order to accommodate increased traffic and respond to
technological advances and evolving customer requirements, we expect that we will be required to make future investments
in our network architecture. If we do not implement future upgrades to our network architecture cost-effectively, or if we
experience prolonged delays or unforeseen difficulties in connection with upgrading our network architecture, our service
quality may suffer and our operating results could be harmed.
Because certain solutions we provide depend on access to customer data, decreased access to this data or the failure to
comply with applicable privacy laws and regulations or address privacy concerns applicable to such data could harm our
business.
Certain of our solutions depend on our continued access to our customers’ data regarding their prospective and current
residents, including data compiled by other third-party service providers who collect and store data on behalf of our
customers. Federal and state governments and agencies have adopted, or are considering adopting, laws and regulations
regarding the collection, use and disclosure of such data. Any decrease in the availability of such data from our customers, or
other third parties that collect and store such data on behalf of our customers, and the costs of compliance with, and other
burdens imposed by, applicable legislative and regulatory initiatives may limit our ability to collect, aggregate or use this
data. Any limitations on our ability to collect, aggregate or use such data could reduce demand for certain of our solutions.
Additionally, any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy
laws, regulations and policies, could result in liability to us or damage to our reputation and could inhibit sales and market
acceptance of our solutions and harm our business.
The market for on demand software solutions in the rental housing industry is new and continues to develop, and if it
does not develop further or develops more slowly than we expect, our business will be harmed.
The market for on demand SaaS software solutions in the rental housing industry delivered via the Internet through a
web browser is rapidly growing but still relatively immature compared to the market for traditional on premise software
installed on a customer’s local personal computer or server. It is uncertain whether the on demand delivery model will
achieve and sustain high levels of demand and market acceptance, making our business and future prospects difficult to
evaluate and predict. While our existing customer base has widely accepted this new model, our future success will depend,
to a large extent, on the willingness of our potential customers to choose on demand software solutions for business processes
that they view as critical. Many of our potential customers have invested substantial effort and financial resources to integrate
traditional enterprise software into their businesses and may be reluctant or unwilling to switch to on demand software
solutions. Some businesses may be reluctant or unwilling to use on demand software solutions because they have concerns
regarding the risks associated with security capabilities, reliability and availability, among other things, of the on demand
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delivery model. Additionally, we believe that one of our competitors, Yardi, is able to exert significant coercive power over
its large customer base because of the high switching costs its customers face and that it uses this coercive power to require
its customers to sign agreements that prohibit the Yardi customers from using the products and services of competing
property management software providers, including RealPage. We have filed suit to enjoin Yardi from this anticompetitive
practice. That suit is described in Item 1 herein. Finally, if potential customers do not consider on demand software solutions
to be beneficial, then the market for these solutions may not further develop, or it may develop more slowly than we expect,
either of which would adversely affect our operating results.
If use of the Internet and mobile technology, particularly with respect to online rental housing products and services,
does not continue to increase as rapidly as we anticipate, our business could be harmed.
Our future success is substantially dependent on the continued use of the Internet and mobile technology as effective
media of business and communication by our customers and consumers. Internet and mobile technology use may not
continue to develop at historical rates, and consumers may not continue to use the Internet or mobile technology as media for
information exchange. Further, these media may not be accepted as viable long-term outlets for rental housing information
for a number of reasons, including actual or perceived lack of security of information and possible disruptions of service or
connectivity. If consumers begin to access rental housing information through other media and we fail to innovate, our
business may be negatively impacted.
Economic trends that affect the rental housing market may have a negative effect on our business.
Our customers include a range of organizations whose success is intrinsically linked to the rental housing market.
Economic trends that negatively affect the rental housing market may adversely affect our business. The recent downturn in
the global economy has caused volatility in the real estate markets, generally, including the rental housing market, and
increases in the rates of mortgage defaults and bankruptcy. Continued instability or downturns affecting the rental housing
market may have a material adverse effect on our business, prospects, financial condition and results of operations by:
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reducing the number of occupied sites and units on which we earn revenue;
preventing our customers from expanding their businesses and managing new properties;
causing our customers to reduce spending on our solutions;
subjecting us to increased pricing pressure in order to add new customers and retain existing customers;
causing our customers to switch to lower-priced solutions provided by our competitors or internally developed
solutions;
delaying or preventing our collection of outstanding accounts receivable; and
causing payment processing losses related to an increase in customer insolvency.
In addition, economic trends that reduce the frequency of renter turnover or the quantity of new renters may reduce the
number of rental transactions completed by our customers and may, as a result, reduce demand for our rental transaction
specific services.
If customers and other advertisers reduce or end their advertising spending on our LeaseStar products and we are
unable to attract new advertisers, our business would be harmed.
Some components of our LeaseStar product family depend on advertising generated through sales to real estate agents
and brokerages, property owners and other advertisers relevant to rental housing. Our ability to attract and retain advertisers,
and ultimately to generate advertising revenue, depends on a number of factors, including:
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increasing the number of consumers of our LeaseStar products and services;
competing effectively for advertising dollars with other online media companies;
continuing to develop our advertising products and services;
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keeping pace with changes in technology and with our competitors; and
offering an attractive return on investment to our advertiser customers for their advertising spending with us.
Reductions in lead generation could have a negative effect on our operating results.
We could face reductions in leads generated for our clients if third party originators of such leads were to elect to
suspend sending leads to us. Reductions in leads generated could reduce the value of our lead generation services, make it
difficult for us to add new lead generation services customers, retain existing lead generation services customers and maintain
or increase sales levels to our existing lead generation services customers and could adversely affect our operating results.
We may require additional capital to support business growth, and this capital might not be available.
We intend to continue to make investments to support our business growth and may require additional funds to respond
to business challenges or opportunities, including the need to develop new solutions or enhance our existing solutions,
enhance our operating infrastructure or acquire businesses and technologies. Accordingly, we may need to engage in equity
or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible
debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have
rights, preferences and privileges superior to those of holders of our common stock. Debt financing secured by us in the
future could involve additional restrictive covenants relating to our capital raising activities and other financial and
operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities,
including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at
all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to
continue to support our business growth and to respond to business challenges or opportunities could be significantly limited.
Our debt obligations contain restrictions that impact our business and expose us to risks that could adversely affect our
liquidity and financial condition.
In December 2011, we entered into an Amended and Restated Credit Agreement with Wells Fargo Capital Finance,
Comerica Bank and the other lenders party thereto (“Restated Agreement”) to amend and restate our original credit facility.
The Restated Agreement provides for a secured revolving credit facility in an aggregate principal amount of up to $150.0
million, subject to a borrowing formula, with a sublimit of $10.0 million for the issuance of letters of credit on our behalf.
The Restated Agreement converted our outstanding term loan under the original agreement into revolving loans. As of
December 31, 2011, $50.3 million was outstanding under our revolving line of credit and $10.0 million was available for the
issuance of letters of credit. Our interest expense in twelve months ended December 31, 2011, 2010 and 2009 for the credit
facility was approximately $2.3 million, $2.7 million and $0.9 million, respectively. Advances under credit facility may be
voluntarily prepaid, and must be prepaid with the proceeds of certain dispositions, extraordinary receipts and indebtedness
and in full upon a change in control.
All of our obligations under the loan facility are secured by substantially all of our property. All of our existing and
future domestic subsidiaries are required to guaranty our obligations under the credit facility, other than certain immaterial
subsidiaries and our payment processing subsidiary, RealPage Payment Processing Services, Inc. Our foreign subsidiaries
may, under certain circumstances, be required to guaranty our obligations under the credit facility. Such guarantees by
existing and future subsidiaries are and will be secured by substantially all of the property of such subsidiaries.
Our credit facility contains customary covenants, which limit our and certain of our subsidiaries’ ability to, among other
things:
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incur additional indebtedness or guarantee indebtedness of others;
create liens on our assets;
enter into mergers or consolidations;
dispose of assets;
prepay indebtedness or make changes to our governing documents and certain of our agreements;
pay dividends and make other distributions on our capital stock, and redeem and repurchase our capital stock;
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make investments, including acquisitions;
enter into transactions with affiliates; and
make capital expenditures.
Our credit facility also contains customary affirmative covenants, including, among other things, requirements to: take
certain actions in the event we form or acquire new subsidiaries; hold annual meetings with our lenders; provide copies of
material contracts and amendments to our lenders; locate our collateral only at specified locations; and use commercially
reasonable efforts to ensure that certain material contracts permit the assignment of the contract to our lenders; subject in
each case to customary exceptions and qualifications. We are also required to comply with a fixed charge coverage ratio,
which is a ratio of our EBITDA to our fixed charges as determined in accordance with the credit facility, of 1.25:1:00 for
each 12-month period ending at the end of a fiscal quarter, and a senior leverage ratio, which is a ratio of the outstanding
revolver usage to our EBITDA as determined in accordance with the credit facility, of 2.75:1.00 for each fiscal quarter.
The credit facility contains customary events of default, subject to customary cure periods for certain defaults, that
include, among others, non-payment defaults, covenant defaults, material judgment defaults, bankruptcy and insolvency
defaults, cross-defaults to certain other material indebtedness, inaccuracy of representations and warranties and a failure to
meet certain liquidity thresholds both before and after we make cash payments for earnouts and holdbacks in connection with
acquisition transactions.
If we experience a decline in cash flow due to any of the factors described in this “Risk Factors” section or otherwise,
we could have difficulty paying interest and principal amounts due on our indebtedness and meeting the financial covenants
set forth in our credit facility. If we are unable to generate sufficient cash flow or otherwise obtain the funds necessary to
make required payments under our credit facility, or if we fail to comply with the requirements of our indebtedness, we could
default under our credit facility. Any default that is not cured or waived could result in the acceleration of the obligations
under the credit facility, an increase in the applicable interest rate under the credit facility and a requirement that our
subsidiaries that have guaranteed the credit facility pay the obligations in full, and would permit our lender to exercise
remedies with respect to all of the collateral that is securing the credit facility, including substantially all of our and our
subsidiary guarantors’ assets. Any such default could have a material adverse effect on our liquidity and financial condition.
Even if we comply with all of the applicable covenants, the restrictions on the conduct of our business could adversely
affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and
other corporate opportunities that may be beneficial to the business. Even if the credit facility was terminated, additional debt
we could incur in the future may subject us to similar or additional covenants.
Assertions by a third party that we infringe its intellectual property, whether successful or not, could subject us to costly
and time-consuming litigation or expensive licenses.
The software and technology industries are characterized by the existence of a large number of patents, copyrights,
trademarks and trade secrets and by frequent litigation based on allegations of infringement, misappropriation, misuse and
other violations of intellectual property rights. We have received in the past, and may receive in the future, communications
from third parties claiming that we have infringed or otherwise misappropriated the intellectual property rights of others. Our
technologies may not be able to withstand any third-party claims against their use. Since we currently have no patents, we
may not use patent infringement as a defensive strategy in such litigation. Additionally, although we have licensed from other
parties proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged,
invalidated or circumvented. If such patents are invalidated or circumvented, this may allow existing and potential
competitors to develop products and services that are competitive with, or superior to, our solutions.
Many of our customer agreements require us to indemnify our customers for certain third-party claims, such as
intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require
that we pay damages if there were an adverse ruling or settlement related to any such claims. These types of claims could
harm our relationships with our customers, may deter future customers from purchasing our solutions or could expose us to
litigation for these claims. Even if we are not a party to any litigation between a customer and a third party, an adverse
outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent
litigation in which we are a named party.
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One of our competitors, Yardi Systems, Inc., contacted us and certain of our customers and expressed its concern that
we may misappropriate its intellectual property by hosting its applications for our mutual customers in The RealPage Cloud.
On January 24, 2011, Yardi Systems, Inc. filed a lawsuit in the U.S. District Court for the Central District of California
against RealPage, Inc. and DC Consulting, Inc. Yardi filed a First Amended Complaint on August 12, 2011. The lawsuit
alleges claims for relief for violation of the Computer Fraud and Abuse Act, violation of the California Comprehensive Data
Access and Fraud Act, violation of the Digital Millennium Copyright Act, copyright infringement, trade secret
misappropriation, unfair competition, and inducement of breach of contract. Yardi seeks injunctive relief, punitive damages,
recovery of all profits attributable to Defendants’ allegedly wrongful acts and infringements, statutory damages, exemplary
damages, prejudgment interest, and attorneys’ fees and costs. The First Amended Complaint alleges, among other things, that
RealPage took Yardi employee, client and independent consultant credentials and used them to access Yardi’s computer
system and steal Yardi’s trade secrets and copyrighted software, related support documentation, price lists and other
proprietary information. In addition, the First Amended Complaint alleges that RealPage improperly obtained administrative-
level access to Yardi’s software and copied it onto RealPage’s servers for its own competitive purposes, used these
unauthorized software copies to discover the allegedly proprietary programming, functionality and feature set of Yardi’s
software, to compete unfairly against Yardi, to create unauthorized derivative works from Yardi’s software, and to enhance
RealPage’s own products and services. Yardi alleges that in doing so, and in offering to indemnify our customers, RealPage
induced Cloud customers to violate their confidentiality and other agreements with Yardi. On March 28, 2011, RealPage filed
an answer to Yardi’s Complaint, and on September 12, 2011 RealPage answered the First Amended Complaint. RealPage has
also filed counterclaims against Yardi, first in connection with its March 28 answer and then in First Amended Counterclaims
filed on May 18, 2011. On September 2, 2011, following the Court’s order granting in part and denying in part Yardi’s
motion to dismiss certain of RealPage’s causes of action without prejudice, RealPage filed Second Amended Counterclaims.
RealPage’s counterclaims allege that Yardi and its agents wrongfully obtained and used our trade secrets and engaged in anti-
competitive behavior with respect to certain of our clients. RealPage’s counterclaims seek relief for misappropriation of trade
secrets, Sherman Act (antitrust) violations and California Cartwright Act violations, intentional interference with contract,
intentional interference with prospective economic advantage, and violation of California’s unfair competition statute.
RealPage seeks damages, punitive damages, injunctive relief and all profits, gains and advantages that Yardi received as a
result of its wrongful conduct along with attorneys’ fees and costs. Yardi filed a Motion to Dismiss RealPage’s Second
Amended Counterclaims on September 30, 2011. On February 13, 2012, the Court denied Yardi’s motion with respect to all
claims except for a portion of one of our claims for intentional interference with contract, as to which dismissal was granted.
Accordingly, RealPage will move forward with its claims against Yardi. We currently expect trial in this case to be scheduled
for late September 2012. It is not possible to predict the outcome of this case, but we intend to defend this case and pursue
our counterclaims vigorously. However, even if we were successful in defending against Yardi’s claims or in prevailing on
our counterclaims, the proceedings could result in significant costs and divert our management’s attention.
On March 26, 2010, Smarter Agent, LLC, a provider of mobile real estate applications, filed a complaint against one of
our subsidiaries, Multifamily Technology Solutions, Inc., and multiple other defendants for patent infringement in the U.S.
District Court for the District of Delaware. The complaint alleges, among other things, that our mobile technology infringes
three patents held by Smarter Agent purporting to cover: a “Global positioning-based real estate database access device and
method,” a “Position-based information access device and method” and a “Position-based information access device and
method of searching,” and seeks injunctive relief, unspecified damages, enhanced damages, prejudgment interest, and
attorneys’ fees and costs. We have denied the allegations and asserted counterclaims seeking declarations that we are not
infringing the patents and that the patents are invalid. In November 2010, the U.S. Patent and Trademark Office granted our
petition for re-examination of the three patents-in-suit and its first office action found all claims invalid. Smarter Agent has
submitted arguments to overcome the objections, but the U.S Patent and Trademark Office has finally rejected one of the
patents, with final action on the other two still pending. In March 2011, the court stayed the litigation pending the completion
of the re-examination proceedings and any related appeals. Because this lawsuit is at an early stage, it is not possible to
predict its outcome. We intend to defend this case and pursue our counterclaims vigorously. However, even if we were
successful in defending against such claims or in prevailing on our counterclaims, the proceedings could result in significant
costs and divert management’s attention.
On January 18, 2012, Earthcomber, LLC filed a complaint in the United States District Court for the Northern District
of Illinois alleging that RealPage, Inc. and Multifamily Technology Solutions, Inc. which is the d/b/a for MyNewPlace
infringed upon two patents owned by Earthcomber. The complaint seeks an unspecified amount of damages for the alleged
infringement. Because this lawsuit is at an early stage, it is not possible to predict its outcome. An unfavorable outcome in
this case could adversely affect our operating results and/or cash flow. We are in the process of evaluating the Earthcomber
patent claims, and we intend to defend this case vigorously. However, even if we were successful in defending against
Earthcomber’s claims, the proceedings could result in significant costs and divert our management’s attention.
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The Yardi Systems litigation, Smarter Agent, LLC litigation Earthcomber, LLC litigation or other similar litigation
could force us to stop selling, incorporating or using our solutions that include the challenged intellectual property or
redesign those solutions that use the technology. In addition, we may have to pay damages if we are found to be in violation
of a third party’s rights. We may have to procure a license for the technology, which may not be available on reasonable
terms, if at all, may significantly increase our operating expenses or may require us to restrict our business activities in one or
more respects. As a result, we may also be required to develop alternative non-infringing technology, which could require
significant effort and expense. There is no assurance that we would be able to develop alternative solutions or, if alternative
solutions were developed, that they would perform as required or be accepted in the relevant markets. In some instances, if
we are unable to offer non-infringing technology, or obtain a license for such technology, we may be required to refund some
or the entire license fee paid for the infringing technology by our customers.
Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we
have a lower level of visibility into the development process with respect to acquired technology or the care taken to
safeguard against infringement risks. Third parties may make infringement and similar or related claims after we have
acquired technology that had not been asserted prior to our acquisition.
Any failure to protect and successfully enforce our intellectual property rights could compromise our proprietary
technology and impair our brands.
Our success depends significantly on our ability to protect our proprietary rights to the technologies we use in our
solutions. If we are unable to protect our proprietary rights adequately, our competitors could use the intellectual property we
have developed to enhance their own products and services, which could harm our business. We rely on a combination of
copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to
establish and protect our proprietary rights, all of which provide only limited protection. We currently have no issued patents
or pending patent applications and may be unable to obtain patent protection in the future. In addition, if any patents are
issued in the future, they may not provide us with any competitive advantages, may not be issued in a manner that gives us
the protection that we seek and may be successfully challenged by third parties. Unauthorized parties may attempt to copy or
otherwise obtain and use the technologies underlying our solutions. Monitoring unauthorized use of our technologies is
difficult, and we do not know whether the steps we have taken will prevent unauthorized use of our technology. If we are
unable to protect our proprietary rights, we may find ourselves at a competitive disadvantage to others who have not incurred
the substantial expense, time and effort required to create similar innovative products.
We cannot assure you that any future service mark or trademark registrations will be issued for pending or future
applications or that any registered service marks or trademarks will be enforceable or provide adequate protection of our
proprietary rights. If we are unable to secure new marks, maintain already existing marks and enforce the rights to use such
marks against unauthorized third-party use, our ability to brand, identify and promote our solutions in the marketplace could
be impaired, which could harm our business.
We customarily enter into agreements with our employees, contractors and certain parties with whom we do business to
limit access to and disclosure of our proprietary information. The steps we have taken, however, may not prevent
unauthorized use or the reverse engineering of our technology. Moreover, we may be required to release the source code of
our software to third parties under certain circumstances. For example, some of our customer agreements provide that if we
cease to maintain or support a certain solution without replacing it with a successor solution, then we may be required to
release the source code of the software underlying such solution. In addition, others may independently develop technologies
that are competitive to ours or infringe our intellectual property. Enforcement of our intellectual property rights also depends
on our legal actions being successful against these infringers, but these actions may not be successful, even when our rights
have been infringed. Furthermore, the legal standards relating to the validity, enforceability and scope of protection of
intellectual property rights in Internet-related industries are uncertain and still evolving.
Additionally, if we sell our solutions internationally in the future, effective patent, trademark, service mark, copyright
and trade secret protection may not be available or as robust in every country in which our solutions are available. As a result,
we may not be able to effectively prevent competitors outside the United States from infringing or otherwise
misappropriating our intellectual property rights, which could reduce our competitive advantage and ability to compete or
otherwise harm our business.
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We may be unable to halt the operations of websites that aggregate or misappropriate data from our LeaseStar websites.
From time to time, third parties have misappropriated data from our LeaseStar websites through website scraping,
robots or other means and aggregated this data on their websites with data from other companies. In addition, copycat
websites have misappropriated data on our network and attempted to imitate our brand or the functionality of our website.
When we have become aware of such websites, we have employed technological or legal measures in an attempt to halt their
operations. However, we may be unable to detect all such websites in a timely manner and, even if we could, technological
and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating
outside of the United States, our available remedies may not be adequate to protect us against the impact of the operation of
such websites. Regardless of whether we can successfully enforce our rights against the operators of these websites, any
measures that we may take could require us to expend significant financial or other resources, which could harm our
business, results of operations or financial condition. In addition, to the extent that such activity creates confusion among
consumers or advertisers, our brand and business could be harmed.
Current and future litigation against us could be costly and time consuming to defend.
We are from time to time subject to legal proceedings and claims that arise in the ordinary course of business, including
claims brought by our customers in connection with commercial disputes, claims brought by our customers’ current or
prospective residents, including potential class action lawsuits based on asserted statutory or regulatory violations, and
employment claims made by our current or former employees. Litigation, regardless of its outcome, may result in substantial
costs and may divert management’s attention and our resources, which may harm our business, overall financial condition
and operating results. In addition, legal claims that have not yet been asserted against us may be asserted in the future.
Insurance may not cover such claims, may not be sufficient for one or more such claims and may not continue to be available
on terms acceptable to us, or at all. A claim brought against us that is uninsured or underinsured could result in unanticipated
costs, thereby harming our operating results.
On January 18, 2012, Earthcomber, LLC filed a complaint in the United States District Court for the Northern District
of Illinois alleging that RealPage, Inc. and Multifamily Technology Solutions, Inc. which is the d/b/a for MyNewPlace
infringed upon two patents owned by Earthcomber. The complaint seeks an unspecified amount of damages for the alleged
infringement. Because this lawsuit is at an early stage, it is not possible to predict its outcome. An unfavorable outcome in
this case could adversely affect our operating results and/or cash flow. We are in the process of evaluating the Earthcomber
patent claims, and we intend to defend this case vigorously. However, even if we were successful in defending against
Earthcomber’s claims, the proceedings could result in significant costs and divert our management’s attention.
On January 24, 2011, Yardi Systems, Inc. filed a lawsuit in the U.S. District Court for the Central District of California
against RealPage, Inc. and DC Consulting, Inc. Yardi filed a First Amended Complaint on August 12, 2011. The lawsuit
alleges claims for relief for violation of the Computer Fraud and Abuse Act, violation of the California Comprehensive Data
Access and Fraud Act, violation of the Digital Millennium Copyright Act, copyright infringement, trade secret
misappropriation, unfair competition, and inducement of breach of contract. Yardi seeks injunctive relief, punitive damages,
recovery of all profits attributable to Defendants’ alleged wrongful acts and infringements, statutory damages, exemplary
damages, prejudgment interest, and attorneys’ fees and costs. The First Amended Complaint alleges, among other things, that
RealPage took Yardi employee, client and independent consultant credentials, and used them to access Yardi’s computer
system and steal Yardi’s trade secrets and copyrighted software, related support documentation, price lists and other
proprietary information. In addition, the First Amended Complaint alleges that RealPage improperly obtained administrative-
level access to Yardi’s software and copied it onto RealPage’s servers for its own competitive purposes, used these
unauthorized software copies to discover the allegedly proprietary programming, functionality and feature set of Yardi’s
software, to compete unfairly against Yardi, to create unauthorized derivative works from Yardi’s software, and to enhance
RealPage’s own products and services. Yardi alleges that in doing so, and in offering to indemnify our customers, RealPage
induced Cloud customers to violate their confidentiality and other agreements with Yardi. On March 28, 2011, RealPage filed
an answer to Yardi’s Complaint, and on September 12, 2011 RealPage answered the First Amended Complaint. RealPage has
also filed counterclaims against Yardi, first in connection with its March 28 answer and then in First Amended Counterclaims
filed on May 18, 2011. On September 2, 2011, following the Court’s order granting in part and denying in part Yardi’s
motion to dismiss certain of RealPage’s causes of action without prejudice, RealPage filed Second Amended Counterclaims.
RealPage’s counterclaims allege that Yardi and its agents wrongfully obtained and used our trade secrets and engaged in anti-
competitive behavior with respect to certain of our clients. RealPage’s counterclaims seek relief for misappropriation of trade
secrets, Sherman Act (antitrust) violations and California Cartwright Act violations, intentional interference with contract,
intentional interference with prospective economic advantage, and violation of California’s unfair competition statute.
RealPage seeks damages, punitive damages, injunctive relief and all profits, gains and advantages that Yardi received as a
result of its wrongful conduct along with attorneys’ fees and costs. Yardi filed a Motion to Dismiss RealPage’s Second
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Amended Counterclaims on September 30, 2011. On February 13, 2012, the Court denied Yardi’s motion with respect to all
claims except for a portion of one of our claims for intentional interference with contract, as to which dismissal was granted.
Accordingly, RealPage will move forward with its claims against Yardi. We currently expect trial in this case to be scheduled
for late September 2012. It is not possible to predict the outcome of this case, but we intend to defend this case and pursue
our counterclaims vigorously. However, even if we were successful in defending against Yardi’s claims or in prevailing on
our counterclaims, the proceedings could result in significant costs and divert our management’s attention.
In March 2010, the District Attorney of Ventura County, California issued an administrative subpoena to us seeking
certain information related to our provision of utility billing services in the State of California. A representative of the District
Attorney has informed us that the subpoena was issued in connection with a general investigation of industry practices with
respect to utility billing in California. Utility billing is subject to regulation by state law and various state administrative
agencies, including, in California, the California Public Utility Commission, or the CPUC, and the Division of Weights and
Measures, or the DWM. We have provided the District Attorney with the information requested in the subpoena. In late
August 2010, we received limited, follow-up requests for information to which we have responded. The District Attorney’s
office has not initiated an administrative or other enforcement action against us, nor have they asserted any violations of the
applicable regulations by us. Given the early stage of this investigation, it is difficult to predict its outcome and whether the
District Attorney will pursue an administrative or other enforcement action against us in the State of California and what the
result of any such action would be. However, penalties or assessments of violations of regulations promulgated by the CPUC
or DWM or other regulators may be calculated on a per occurrence basis. Due to the large number of billing transactions we
process for our customers in California, our potential liability in an enforcement action could be significant. If the District
Attorney ultimately pursues an administrative or other enforcement action against us, we believe that we have meritorious
defenses to the potential claims and would defend them vigorously. However, even if we were successful in defending
against such claims, the proceedings could result in significant costs and divert management’s attention.
On March 26, 2010, Smarter Agent, LLC, a provider of mobile real estate applications, filed a complaint against our
subsidiary, Multifamily Technology Solutions, Inc., and multiple other defendants for patent infringement in the U.S. District
Court for the District of Delaware. The complaint alleges, among other things, that our mobile technology infringes three
patents held by Smarter Agent purporting to cover: a “Global positioning-based real estate database access device and
method,” a “Position-based information access device and method” and a “Position-based information access device and
method of searching,” and seeks injunctive relief, unspecified damages, enhanced damages, prejudgment interest, and
attorneys’ fees and costs. We have denied the allegations and asserted counterclaims seeking declarations that we are not
infringing the patents and that the patents are invalid. In November 2010, the U.S. Patent and Trademark Office granted our
petition for re-examination of the three patents-in-suit and its first office action found all claims invalid. Smarter Agent has
submitted arguments to overcome the objections, but the U.S Patent and Trademark Office has finally rejected one of the
patents, with final action on the other two still pending. In March 2011, the court stayed the litigation pending the completion
of the re-examination proceedings and any related appeals. Because this lawsuit is at an early stage, it is not possible to
predict its outcome. We intend to defend this case and pursue our counterclaims vigorously. However, even if we were
successful in defending against such claims or in prevailing on our counterclaims, the proceedings could result in significant
costs and divert management’s attention.
We could be sued for contract, warranty or product liability claims, and such lawsuits may disrupt our business, divert
management’s attention and our financial resources or have an adverse effect on our financial results.
We provide warranties to customers of certain of our solutions and services, relating primarily to product functionality,
network uptime, critical infrastructure availability and hardware replacement. General errors, defects, inaccuracies or other
performance problems in the software applications underlying our solutions or inaccuracies in or loss of the data we provide
to our customers could result in financial or other damages to our customers. Additionally, errors associated with any
delivery of our services, including utility billing, could result in financial or other damages to our customers. There can be no
assurance that any limitations of liability set forth in our contracts would be enforceable or would otherwise protect us from
liability for damages. We maintain general liability insurance coverage, including coverage for errors and omissions, in
amounts and under terms that we believe are appropriate. There can be no assurance that this coverage will continue to be
available on terms acceptable to us, or at all, or in sufficient amounts to cover one or more large product liability claims, or
that the insurer will not deny coverage for any future claim. The successful assertion of one or more large product liability
claims against us that exceeds available insurance coverage, could have a material adverse effect on our business, prospects,
financial condition and results of operations.
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If we fail to develop our brands cost-effectively, our financial condition and operating results could be harmed.
We market our solutions under discrete brand names. We believe that developing and maintaining awareness of our
brands is critical to achieving widespread acceptance of our existing and future solutions and is an important element in
attracting new customers and retaining our existing customers. Additionally, we believe that developing these brands in a
cost-effective manner is critical in meeting our expected margins. In the past, our efforts to build our brands have involved
significant expenses and we intend to continue to make expenditures on brand promotion. Brand promotion activities may not
yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our
brands. If we fail to cost-effectively build and maintain our brands, we may fail to attract new customers or retain our
existing customers, and our financial condition and results of operations could be harmed.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial
statements could be impaired, which could harm our operating results, our ability to operate our business and investors’
views of us.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can
produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated
frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Beginning with the
year ended December 31, 2011, we are required to be in compliance with Section 404 of the Sarbanes-Oxley Act of 2002, or
the Sarbanes-Oxley Act, which requires annual management assessment of the effectiveness of our internal control over
financial reporting and a report by our independent auditors. If we fail to maintain proper and effective internal controls, our
ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, harm
our ability to operate our business and reduce the trading price of our stock.
Changes in, or errors in our interpretations and applications of, financial accounting standards or practices may cause
adverse, unexpected financial reporting fluctuations and affect our reported results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect
our reporting of transactions completed before the change is effective. New accounting pronouncements and varying
interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the
questioning of current practices or errors in our interpretations and applications of financial accounting standards or practices
may adversely affect our reported financial results or the way in which we conduct our business.
We have incurred, and will incur, increased costs and demands upon management as a result of complying with the
laws and regulations affecting public companies, which could harm our operating results.
As a public company, we have incurred, and will incur, significant legal, accounting, investor relations and other
expenses that we did not incur as a private company, including costs associated with public company reporting requirements.
We also have incurred and will incur costs associated with current corporate governance requirements, including
requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the
Securities Exchange Commission and The NASDAQ Stock Market LLC. We expect these rules and regulations to increase
our legal and financial compliance costs substantially and to make some activities more time-consuming and costly. We also
expect that, as a public company, it will be more expensive for us to obtain director and officer liability insurance and that it
may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive
officers.
Government regulation of the rental housing industry, including background screening services and utility billing, the
Internet and e-commerce is evolving, and changes in regulations or our failure to comply with regulations could harm
our operating results.
The rental housing industry is subject to extensive and complex federal, state and local regulations. Our services and
solutions must work within the extensive and evolving regulatory requirements applicable to our customers and third-party
service providers, including, but not limited to, those under the Fair Credit Reporting Act, the Fair Housing Act, the
Deceptive Trade Practices Act, the DPPA, the Gramm-Leach-Bliley Act, the Fair and Accurate Credit Transactions Act, the
Privacy Rules, Safeguards Rule and Consumer Report Information Disposal Rule promulgated by the Federal Trade
Commission, or FTC, the regulations of the United States Department of Housing and Urban Development, or HUD,
HIPAA/HITECH and complex and divergent state and local laws and regulations related to data privacy and security, credit
and consumer reporting, deceptive trade practices, discrimination in housing, utility billing and energy and gas consumption.
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These regulations are complex, change frequently and may become more stringent over time. Although we attempt to
structure and adapt our solutions and service offerings to comply with these complex and evolving laws and regulations, we
may be found to be in violation. If we are found to be in violation of any applicable laws or regulations, we could be subject
to administrative and other enforcement actions as well as class action lawsuits or demands for client reimbursement.
Additionally, many applicable laws and regulations provide for penalties or assessments on a per occurrence basis. Due to the
nature of our business, the type of services we provide and the large number of transactions processed by our solutions, our
potential liability in an enforcement action or class action lawsuit could be significant. In addition, entities such as HUD and
the FTC have the authority to promulgate rules and regulations that may impact our customers and our business. We believe
increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection,
processing or use of personally identifiable information or consumer information could affect our customers’ ability to use
and share data, potentially reducing demand for our on demand software solutions.
Some of our LeaseStar products operate under the real estate brokerage laws of numerous states and require maintaining
licenses in many of these states. Brokerage laws in these states could change, affecting our ability to do provide some
LeaseStar products in these states.
We deliver our on demand software solutions over the Internet and sell and market certain of our solutions over the
Internet. As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more
likely. Taxation of products or services provided over the Internet or other charges imposed by government agencies or by
private organizations for accessing the Internet may also be imposed. Any regulation imposing greater fees for Internet use or
restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of on
demand software solutions, which could harm our business and operating results.
Our LeasingDesk insurance business is subject to governmental regulation which could reduce our profitability or limit
our growth.
Through our wholly owned subsidiary, Multifamily Internet Ventures LLC, we hold insurance agent licenses from a
number of individual state departments of insurance and are subject to state governmental regulation and supervision in
connection with the operation of our LeasingDesk insurance business. This state governmental supervision could reduce our
profitability or limit the growth of our LeasingDesk insurance business by increasing the costs of regulatory compliance,
limiting or restricting the solutions we provide or the methods by which we provide them or subjecting us to the possibility of
regulatory actions or proceedings. Our continued ability to maintain these insurance agent licenses in the jurisdictions in
which we are licensed depends on our compliance with the rules and regulations promulgated from time to time by the
regulatory authorities in each of these jurisdictions. Furthermore, state insurance departments conduct periodic examinations,
audits and investigations of the affairs of insurance agents.
In all jurisdictions, the applicable laws and regulations are subject to amendment or interpretation by regulatory
authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and
approvals and to implement regulations. Accordingly, we may be precluded or temporarily suspended from carrying on some
or all of the activities of our LeasingDesk insurance business or otherwise be fined or penalized in a given jurisdiction. No
assurances can be given that our LeasingDesk insurance business can continue to be conducted in any given jurisdiction as it
has been conducted in the past.
We generate commission revenue from the insurance policies we sell as a registered insurance agent and if insurance
premiums decline or if the insureds experience greater than expected losses, our revenues could decline and our
operating results could be harmed.
Through our wholly owned subsidiary, Multifamily Internet Ventures LLC, a managing general insurance agency, we
generate commission revenue from offering liability and renter’s insurance. Additionally, Multifamily Internet Ventures LLC
has recently commenced the sale of additional insurance products, including auto and other personal lines insurance, to
residents that buy renter’s insurance from us. These policies are ultimately underwritten by various insurance carriers. Some
of the property owners and managers that participate in our programs opt to require residents to purchase rental insurance
policies and agree to grant to Multifamily Internet Ventures LLC exclusive marketing rights at their properties. If demand for
residential rental housing declines, property owners and managers may be forced to reduce their rental rates and to stop
requiring the purchase of rental insurance in order to reduce the overall cost of renting. If property owners or managers cease
to require renter’s insurance, elect to offer policies from competing providers or insurance premiums decline, our revenues
from selling insurance policies will be adversely affected.
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Additionally, one type of commission paid by insurance carriers to Multifamily Internet Ventures LLC is contingent
commission, which is based on claims experienced at the properties for which the residents purchase insurance. In the event
that claims by the insureds increase unexpectedly, the contingent commission we typically earn will be adversely affected. As
a result, our quarterly operating results could fall below the expectations of analysts or investors, in which event our stock
price may decline.
Multifamily Internet Ventures LLC is required to maintain a 50-state general agency insurance license as well as
individual insurance licenses for each sales agent involved in the solicitation of insurance products. Both the agency and
individual licenses require compliance with state insurance regulations, payment of licensure fees, and continuing education
programs. In the event that regulatory compliance requirements are not met, Multifamily Internet Ventures LLC could be
subject to license suspension or revocation, state Department of Insurance audits, and regulatory fines. As a result, our ability
to engage in the business of insurance could be restricted, and our operating revenue will be adversely affected.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, a
corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating
losses, or NOLs, to offset future taxable income. Our ability to utilize NOLs of companies that we may acquire in the future
may be subject to limitations. Future changes in our stock ownership, some of which are outside of our control, could result
in an ownership change under Section 382 of the Internal Revenue Code. For these reasons, we may not be able to utilize a
material portion of the NOLs reflected on our balance sheet, even if we maintain profitability.
If we are required to collect sales and use taxes on the solutions we sell in additional taxing jurisdictions, we may be
subject to liability for past sales and our future sales may decrease.
States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these
rules and regulations are subject to varying interpretations that may change over time. We review these rules and regulations
periodically and currently collect and remit sales taxes in taxing jurisdictions where we believe we are required to do so.
However, additional state and/or local taxing jurisdictions may seek to impose sales or other tax collection obligations on us,
including for past sales. A successful assertion that we should be collecting additional sales or other taxes on our solutions
could result in substantial tax liabilities for past sales, discourage customers from purchasing our solutions or may otherwise
harm our business and operating results. This risk is greater with regard to solutions acquired through acquisitions.
We may also become subject to tax audits or similar procedures in jurisdictions where we already collect and remit sales
taxes. A successful assertion that we have not collected and remitted taxes at the appropriate levels may also result in
substantial tax liabilities for past sales. Liability for past taxes may also include very substantial interest and penalty charges.
Our customer contracts provide that our customers must pay all applicable sales and similar taxes. Nevertheless, customers
may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes. If we
are required to collect and pay back taxes and the associated interest and penalties, and if our customers fail or refuse to
reimburse us for all or a portion of these amounts, we will incur unplanned expenses that may be substantial. Moreover,
imposition of such taxes on our solutions going forward will effectively increase the cost of such solutions to our customers
and may adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are
imposed.
Changes in our effective tax rate could harm our future operating results.
We are subject to federal and state income taxes in the United States and various foreign jurisdictions, and our domestic
and international tax liabilities are subject to the allocation of expenses in differing jurisdictions. Our tax rate is affected by
changes in the mix of earnings and losses in jurisdictions with differing statutory tax rates, including jurisdictions in which
we have completed or may complete acquisitions, certain non-deductible expenses arising from the requirement to expense
stock options and the valuation of deferred tax assets and liabilities, including our ability to utilize our net operating losses.
Increases in our effective tax rate could harm our operating results.
We rely on our management team and need additional personnel to grow our business, and the loss of one or more key
employees or our inability to attract and retain qualified personnel could harm our business.
Our success and future growth depend on the skills, working relationships and continued services of our management
team. The loss of our Chief Executive Officer or other senior executives could adversely affect our business. Our future
success also will depend on our ability to attract, retain and motivate highly skilled software developers, marketing and sales
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personnel, technical support and product development personnel in the United States and internationally. All of our
employees work for us on an at-will basis. Competition for these types of personnel is intense, particularly in the software
industry. As a result, we may be unable to attract or retain qualified personnel. Our inability to attract and retain the necessary
personnel could adversely affect our business.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose
the innovation, creativity and teamwork fostered by our culture, and our business may be harmed.
We believe that a strong corporate culture that nurtures core values and philosophies is essential to our long-term
success. We call these values and philosophies the “RealPage Promise” and we seek to practice the RealPage Promise in our
actions every day. The RealPage Promise embodies our corporate values with respect to customer service, investor
communications, employee respect and professional development and management decision-making and leadership. As our
organization grows and we are required to implement more complex organizational structures, we may find it increasingly
difficult to maintain the beneficial aspects of our corporate culture which could negatively impact our future success.
Risks Related to Ownership of our Common Stock
The concentration of our capital stock owned by insiders may limit your ability to influence corporate matters.
Our executive officers, directors, and entities affiliated with them together beneficially owned approximately 52.8% of
our common stock as of December 31, 2011. Further, Stephen T. Winn, our Chief Executive Officer and Chairman of the
Board, and entities beneficially owned by Mr. Winn held an aggregate of approximately 37.6% of our common stock as of
December 31, 2011. This significant concentration of ownership may adversely affect the trading price for our common stock
because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Mr. Winn and
entities beneficially owned by Mr. Winn may control our management and affairs and matters requiring stockholder
approval, including the election of directors and the approval of significant corporate transactions, such as mergers,
consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect
of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us,
or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change
of control would benefit our other stockholders.
The trading price of our common stock price may be volatile.
The trading price of our common stock could be subject to wide fluctuations in response to various factors, including,
but not limited to, those described in this “Risk Factors” section, some of which are beyond our control. Factors affecting the
trading price of our common stock include:
•
•
•
•
•
•
•
•
•
•
•
•
•
variations in our operating results or in expectations regarding our operating results;
variations in operating results of similar companies;
announcements of technological innovations, new solutions or enhancements, strategic alliances or agreements by
us or by our competitors;
announcements by competitors regarding their entry into new markets, and new product, service and pricing
strategies;
marketing, advertising or other initiatives by us or our competitors;
the gain or loss of customers;
threatened or actual litigation;
major changes in our board of directors or management;
recruitment or departure of key personnel;
changes in the estimates of our operating results or changes in recommendations by any research analysts that elect
to follow our common stock;
market conditions in our industry and the economy as a whole;
the overall performance of the equity markets;
sales of our shares of common stock by existing stockholders;
41
•
•
volatility in our stock price, which may lead to higher stock-based compensation expense under applicable
accounting standards; and
adoption or modification of regulations, policies, procedures or programs applicable to our business.
In addition, the stock market in general, and the market for technology and specifically Internet-related companies, has
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of those companies. Broad market and industry factors may harm the market price of our common stock
regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market
and the market price of a particular company’s securities, securities class action litigation has often been instituted against
these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s
attention and our resources, whether or not we are successful in such litigation.
Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future
sale.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur,
could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we deem appropriate.
As of December 31, 2011, we had 72,701,571 shares of common stock outstanding. Of these shares, 71,032,511 were
immediately tradable without restriction or further registration under the Securities Act, unless these shares are held by
“affiliates,” as that term is defined in Rule 144 under the Securities Act.
As of December 31, 2011, holders of 37,966,766 shares, or approximately 52.8%, of our outstanding common stock
were entitled to rights with respect to the registration of these shares under the Securities Act. If we register their shares of
common stock, these stockholders could sell those shares in the public market without being subject to the volume and other
restrictions of Rule 144 and Rule 701.
In addition, we have registered approximately 16,934,606 shares of common stock that have been issued or reserved for
future issuance under our stock incentive plans. Of these shares, 3,482,000 shares were eligible for sale upon the exercise of
vested options as of December 31, 2011.
Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also
reduce the market price of our stock.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that
could delay or prevent a change in control of our company. These provisions could also make it more difficult for
stockholders to elect directors and take other corporate actions. These provisions include:
•
•
•
•
•
a classified board of directors whose members serve staggered three-year terms;
not providing for cumulative voting in the election of directors;
authorizing our board of directors to issue, without stockholder approval, preferred stock with rights senior to
those of our common stock;
prohibiting stockholder action by written consent; and
requiring advance notification of stockholder nominations and proposals.
These and other provisions of our amended and restated certificate of incorporation and our amended and restated
bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing
to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it
would be without these provisions.
If securities analysts do not continue to publish research or reports about our business or if they publish negative
evaluations of our stock, the price of our stock could decline.
We expect that the trading price for our common stock may be affected by research or reports that industry or financial
analysts publish about us or our business. If one or more of the analysts who cover us downgrade their evaluations of our
42
stock, the price of our stock could decline. If one or more of these analysts cease coverage of our company, we could lose
visibility in the market for our stock, which in turn could cause our stock price to decline.
We do not anticipate paying any dividends on our common stock.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. If we do not pay cash
dividends, you would receive a return on your investment in our common stock only if the market price of our common stock
has increased when you sell your shares. In addition, the terms of our credit facilities currently restrict our ability to pay
dividends.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We currently lease approximately 200,000 square feet of space for our corporate headquarters and data center in
Carrollton, Texas under lease agreements that expire in August 2016. We have offices in Tulsa, Oklahoma; Camarillo,
California; Irvine, California; San Francisco, California; San Diego, California; Plano, TX; Kennesaw, Georgia; Milwaukee,
Wisconsin; Vienna, Virginia; Williston, Vermont; Mason, Ohio; Charlotte, North Carolina; Greer, South Carolina;
Washington D.C.; Portland, Oregon; Winnipeg, Manitoba, Canada; Manila, Philippines and Hyderabad, India. We believe
our current and planned data centers and office facilities will be adequate for the foreseeable future.
We also license data center space and collocation services at a facility in Dallas, Texas for our secondary data center
pursuant to a master services agreement with DataBank Holdings Ltd., or DataBank. Our agreement with DataBank has an
initial term of 36 months and automatically renews for successive one-year terms unless we elect to terminate the agreement
by giving notice 30 days prior to the end of a current term, in which case the agreement terminates at the end of such term.
The initial term of our agreement with DataBank expired on May 31, 2010, and the agreement automatically renews for
successive one-year terms. We may also terminate the master services agreement for convenience upon 30 days notice and
payment of specified fees, and either party may terminate the agreement for cause and without penalty. Following
termination of the master services agreement for any reason, DataBank is obligated to continue to provide such services
related to the termination as we may reasonably request, but only for a period of 15 days. Any unplanned termination of our
master services agreement with DataBank or DataBank’s failure to perform its obligations under the agreement would require
us to move our secondary data center to another provider and could cause disruptions in the continuous availability of our
secondary data center or some of our services.
Item 3. Legal Proceedings
From time to time, we have been and may be involved in various legal proceedings arising from our ordinary course of
business.
On January 18, 2012, Earthcomber, LLC filed a complaint in the United States District Court for the Northern District
of Illinois alleging that RealPage, Inc. and Multifamily Technology Solutions, Inc. which is the d/b/a for MyNewPlace
infringe two patents owned by Earthcomber. The complaint seeks an unspecified amount of damages for the alleged
infringement. Because this lawsuit is at an early stage, it is not possible to predict its outcome. An unfavorable outcome in
this case could adversely affect our operating results and/or cash flow. We are in the process of evaluating the Earthcomber
patent claims, and we intend to defend this case vigorously. However, even if we were successful in defending against
Earthcomber’s claims, the proceedings could result in significant costs and divert our management’s attention.
On January 24, 2011, Yardi Systems, Inc. filed a lawsuit in the U.S. District Court for the Central District of California
against RealPage, Inc. and DC Consulting, Inc. Yardi filed a First Amended Complaint on August 12, 2011. The lawsuit
alleges claims for relief for violation of the Computer Fraud and Abuse Act, violation of the California Comprehensive Data
Access and Fraud Act, violation of the Digital Millennium Copyright Act, copyright infringement, trade secret
misappropriation, unfair competition, and inducement of breach of contract. Yardi seeks injunctive relief, punitive damages,
recovery of all profits attributable to Defendants’ allegedly wrongful acts and infringements, statutory damages, exemplary
damages, prejudgment interest, and attorneys’ fees and costs. The First Amended Complaint alleges, among other things, that
RealPage took Yardi employee, client and independent consultant credentials and used them to access Yardi’s computer
system and steal Yardi’s trade secrets and copyrighted software, related support documentation, price lists and other
proprietary information. In addition, the First Amended Complaint alleges that RealPage improperly obtained administrative-
level access to Yardi’s software and copied it onto RealPage’s servers for its own competitive purposes, used these
43
unauthorized software copies to discover the allegedly proprietary programming, functionality and feature set of Yardi’s
software, to compete unfairly against Yardi, to create unauthorized derivative works from Yardi’s software, and to enhance
RealPage’s own products and services. Yardi alleges that in doing so, and in offering to indemnify our customers, RealPage
induced Cloud customers to violate their confidentiality and other agreements with Yardi. On March 28, 2011, RealPage filed
an answer to Yardi’s Complaint, and on September 12, 2011, RealPage answered the First Amended Complaint. RealPage
has also filed counterclaims against Yardi, first in connection with its March 28 answer and then in First Amended
Counterclaims filed on May 18, 2011. On September 2, 2011, following the Court’s order granting in part and denying in part
Yardi’s motion to dismiss certain of RealPage’s causes of action without prejudice, RealPage filed Second Amended
Counterclaims. RealPage’s counterclaims allege that Yardi and its agents wrongfully obtained and used our trade secrets and
engaged in anti-competitive behavior with respect to certain of our clients. RealPage’s counterclaims seek relief for
misappropriation of trade secrets, Sherman Act (antitrust) violations and California Cartwright Act violations, intentional
interference with contract, intentional interference with prospective economic advantage, and violation of California’s unfair
competition statute. RealPage seeks damages, punitive damages, injunctive relief and all profits, gains and advantages that
Yardi received as a result of its wrongful conduct along with attorneys’ fees and costs. Yardi filed a Motion to Dismiss
RealPage’s Second Amended Counterclaims on September 30, 2011. On February 13, 2012, the Court denied Yardi’s motion
with respect to all claims except for a portion of one of our claims for intentional interference with contract, as to which
dismissal was granted. Accordingly, RealPage will move forward with its claims against Yardi. We currently expect trial in
this case to be scheduled for late September 2012. It is not possible to predict the outcome of this case, but we intend to
defend this case and pursue our counterclaims vigorously. However, even if we were successful in defending against Yardi’s
claims or in prevailing on our counterclaims, the proceedings could result in significant costs and divert our management’s
attention.
In March 2010, the District Attorney of Ventura County, California issued an administrative subpoena to us seeking
certain information related to our provision of utility billing services in the State of California. A representative of the District
Attorney has informed us that the subpoena was issued in connection with a general investigation of industry practices with
respect to utility billing in California. Utility billing is subject to regulation by state law and various state administrative
agencies, including, in California, the California Public Utility Commission, or the CPUC, and the Division of Weights and
Measures, or the DWM. We have provided the District Attorney with the information requested in the subpoena. In late
August 2010, we received limited, follow-up requests for information to which we have responded. The District Attorney’s
office has not initiated an administrative or other enforcement action against us, nor have they asserted any violations of the
applicable regulations by us. Given the early stage of this investigation, it is difficult to predict its outcome and whether the
District Attorney will pursue an administrative or other enforcement action against us in the State of California and what the
result of any such action would be. However, penalties or assessments of violations of regulations promulgated by the CPUC
or DWM or other regulators may be calculated on a per occurrence basis. Due to the large number of billing transactions we
process for our customers in California, our potential liability in an enforcement action could be significant. If the District
Attorney ultimately pursues an administrative or other enforcement action against us, we believe that we have meritorious
defenses to the potential claims and would defend them vigorously. However, even if we were successful in defending
against such claims, the proceedings could result in significant costs and divert management’s attention.
On March 26, 2010, Smarter Agent, LLC, a provider of mobile real estate applications, filed a complaint against our
subsidiary, Multifamily Technology Solutions, Inc., and multiple other defendants for patent infringement in the U.S. District
Court for the District of Delaware. The complaint alleges, among other things, that our mobile technology infringes three
patents held by Smarter Agent purporting to cover: a “Global positioning-based real estate database access device and
method,” a “Position-based information access device and method” and a “Position-based information access device and
method of searching,” and seeks injunctive relief, unspecified damages, enhanced damages, prejudgment interest, and
attorneys’ fees and costs. We have denied the allegations and asserted counterclaims seeking declarations that we are not
infringing the patents and that the patents are invalid. In November 2010, the U.S. Patent and Trademark Office granted our
petition for re-examination of the three patents-in-suit and its first office action found all claims invalid. Smarter Agent has
submitted arguments to overcome the objections, but the U.S Patent and Trademark Office has finally rejected one of the
patents, with final action on the other two still pending. In March 2011, the court stayed the litigation pending the completion
of the re-examination proceedings and any related appeals. Because this lawsuit is at an early stage, it is not possible to
predict its outcome. We intend to defend this case and pursue our counterclaims vigorously. However, even if we were
successful in defending against such claims or in prevailing on our counterclaims, the proceedings could result in significant
costs and divert management’s attention.
Item 4. Reserved
44
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Market Information and Holders
Our common stock is traded on the NASDAQ Global Select Market under the symbol “RP.” The following table sets forth
for the periods indicated the high and low sale prices per share of our common stock as reported on the NASDAQ Global
Select Market for the periods indicated:
Year Ending December 31, 2010
Third Quarter .........................................................................................................................
Fourth Quarter .......................................................................................................................
Year Ending December 31, 2011
First Quarter ...........................................................................................................................
Second Quarter ......................................................................................................................
Third Quarter .........................................................................................................................
Fourth Quarter .......................................................................................................................
Low
$
$
12.42
18.78
Low
$
$
$
$
22.00
24.10
18.17
19.33
High
19.99
34.19
High
31.00
32.83
26.71
28.08
$
$
$
$
$
$
On February 10, 2012, the closing price of our common stock on the NASDAQ Global Select Market was $27.10 per
share and, as of February 10, 2012, there were over 650 holders of record of our common stock.
Dividend Policy
We do not expect to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our
earnings will be used for the operation and growth of the business. Any future determination to declare cash dividends would
be subject to the discretion of our board of directors and would depend upon various factors, including our results of
operations, financial condition and liquidity requirements, restrictions that may be imposed by applicable law and our
contracts and other factors deemed relevant by our board of directors. In addition, the terms of our credit facilities currently
restrict our ability to pay dividends.
Equity Compensation Plan Information
For information regarding securities authorized for issuance under equity compensation plans, see Part III “Item 12 —
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
45
Performance Graph
The following graph compares the relative performance of our common stock, the NASDAQ Global Market Index,
NASDAQ Composite and the NASDAQ Computer and Data Processing Index. This graph covers the quarterly periods from
August 12, 2010 (the first trading date immediately following our initial public offering), through December 31, 2011. In
each case, this graph assumes a $100 investment on August 12, 2010 at our closing price of $14.52 per share and
reinvestment of all dividends, if any.
Comparison of Cumulative Total Return
Assumes Initial Investment of $100
December 31, 2011
250.00
200.00
150.00
100.00
50.00
0.00
8/12/2010
9/30/2010
12/31/2010
3/31/2011
6/30/2011
9/30/2011
12/31/2011
RealPage, Inc.
NASDAQ Global Market Index
NASDAQ Composite - Total Returns
NASDAQ Computer and Data Processing Index
8/12/2010
9/30/2010
12/31/2010
3/31/2011
6/30/2011
9/30/2011
12/31/2011
RealPage, Inc.
NASDAQ Composite - Total Returns
NASDAQ Global Market Index
NASDAQ Computer and Data Processing Index
100.00
100.00
100.00
100.00
131.40
108.34
111.01
109.98
213.02
121.72
124.92
124.92
190.98
127.86
133.57
128.83
182.30
127.82
130.56
127.79
140.84
111.59
102.34
115.66
174.04
120.76
108.29
121.08
46
Recent Sales of Unregistered Securities
1. In connection with our August 24, 2011 acquisition of Multifamily Technology Solutions, Inc. (“MTS”), on
September 6, 2011, we issued an aggregate total of 294,770 shares of our common stock to certain accredited investors in
partial consideration of their ownership of MTS. Pursuant to the Agreement and Plan of Merger relating to the MTS
acquisition, a portion of the consideration payable to such accredited investors in connection with our acquisition of MTS
was divided by approximately $23.29 to determine the number of restricted shares of our common stock that would be issued
to such accredited investors. The sale and issuance of these shares of our common stock was exempt from registration under
Rule 506 of Regulation D promulgated under the Securities Act.
The foregoing transaction did not involve any underwriters, underwriting discounts or commissions. Stock certificates
issued in the foregoing transaction bear appropriate Securities Act legends as to the restricted nature of such securities.
Item 6. Selected Financial Data
We have derived the consolidated statements of operations and balance sheet data for the years ended December 31,
2011, 2010, 2009, 2008 and 2007 from our audited consolidated financial statements, which have been audited by Ernst &
Young LLP, independent registered public accounting firm. Over the last five fiscal years, we have acquired a number of
companies as disclosed in Note 3 — Acquisitions in the notes to our consolidated financial statements. The results of our
acquired companies have been included in our consolidated financial statements since their respective dates of acquisition
and have contributed to our growth in our results of operations. You should read this information in conjunction with our
audited consolidated financial statements, the related notes to these financial statements and the information in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this
Annual Report. Our historical results are not necessarily indicative of our future results.
47
2011
Year Ended December 31,
2010
2009
(in thousands, except per share data)
2008
2007
$ 239,436
6,581
11,962
257,979
105,717
152,262
$ 169,678
8,545
10,051
188,274
79,044
109,230
$ 128,377
3,860
8,665
140,902
58,513
82,389
$ 95,192
7,582
9,794
112,568
46,058
66,510
44,561
63,923
41,968
150,452
1,810
(3,251)
(1,441)
(210)
(1,231)
(1,231)
(1,231)
(0.02)
(0.02)
36,922
37,693
28,328
102,943
6,287
(5,501)
786
719
67
(2,877)
(2,877)
(0.07)
(0.07)
$
$
$
$
$
68,480
68,480
39,737
39,737
$
$
$
$
$
$
51,273
124,758
400,065
114,376
66,018
50,377
177,184
—
222,881
$
56,459
49,226
16,147
$ 118,010
170,522
342,792
93,974
55,664
66,629
170,208
—
172,584
$
35,303
27,690
12,178
$
$
$
$
$
$
27,446
27,804
20,210
75,460
6,929
(4,528)
2,401
(26,028)
28,429
28,806
23,923
14,135
66,864
(354)
(2,152)
(2,506)
703
(3,209)
$
10,611
10,611
$ (10,658)
$ (10,658)
0.44
0.42
$
$
(0.77)
(0.77)
23,934
25,511
13,886
13,886
4,427
51,003
142,113
78,050
49,428
53,990
136,757
71,832
(66,476)
$
4,248
49,119
102,340
75,705
47,232
48,943
129,622
71,675
(98,957)
$
25,593
24,758
9,509
$ 13,064
7,962
10,263
7,790
7,302
2,273
6,922
6,066
1,759
5,032
4,551
1,141
2,669
3,833
922
$
$
$
$
$
$
$
$
62,592
11,560
9,429
83,581
35,703
47,878
21,708
18,047
9,756
49,511
(1,633)
(1,510)
(3,143)
—
(3,143)
(9,143)
(9,143)
(0.89)
(0.89)
10,223
10,223
2,731
30,414
59,518
54,969
41,052
23,809
87,954
78,534
(106,969)
5,984
4,441
7,122
2,199
2,800
654
Revenue:
On demand ......................................................
On premise ......................................................
Professional and other .....................................
Total revenue ...............................................
Cost of revenue ....................................................
Gross profit ..........................................................
Operating expenses:
Product development .......................................
Sales and marketing .........................................
General and administrative..............................
Total operating expense ..............................
Operating income (loss) .......................................
Interest expense and other, net .............................
Net (loss) income before taxes .............................
Income tax (benefit) expense ...............................
Net (loss) income .................................................
Net (loss) income attributable to common
stockholders:
Basic ................................................................
Diluted .............................................................
Net (loss) income per share attributable to
common stockholders:
Basic ................................................................
Diluted .............................................................
Weighted average shares used in computing net
(loss) income per share attributable to
common stockholders:
Basic ................................................................
Diluted .............................................................
Consolidated Balance Sheet Data:
Cash and cash equivalents(1) ...............................
Total current assets ..............................................
Total assets ..........................................................
Total current liabilities .........................................
Total deferred revenue .........................................
Current and long-term debt(2) .............................
Total liabilities .....................................................
Redeemable convertible preferred stock ..............
Total stockholders’ equity (deficit) ......................
Other Financial Data:
Adjusted EBITDA(3) ...........................................
Operating cash flow .............................................
Capital expenditures ............................................
Selected Operating Data:
Number of on demand customers at period end ..
Number of on demand units at period end ...........
Total number of employees at period end ............
____________________
(1) Excludes restricted cash.
(2)
Includes capital lease obligations.
(3) We define this metric as net (loss) income plus depreciation and asset impairment; amortization of intangible assets;
interest expense, net; income tax expense (benefit); stock-based compensation expense and acquisition-related expense.
In 2011, Adjusted EBITDA excludes litigation related expenses pertaining to the Yardi litigation as discussed in Part I,
Item 3 “Legal Proceedings.” Beginning in the second quarter of 2011, Adjusted EBITDA includes acquisition-related
deferred revenue adjustments.
48
We believe that the use of Adjusted EBITDA is useful to investors and other users of our financial statements in
evaluating our operating performance because it provides them with an additional tool to compare business performance
across companies and across periods. We believe that:
•
•
Adjusted EBITDA provides investors and other users of our financial information consistency and comparability
with our past financial performance, facilitates period-to-period comparisons of operations and facilitates
comparisons with our peer companies, many of which use similar non-GAAP financial measures to supplement
their GAAP results; and
it is useful to exclude certain non-cash charges, such as depreciation and asset impairment, amortization of
intangible assets and stock-based compensation and non-core operational charges, such as acquisition-related
expense and litigation-related expenses, from Adjusted EBITDA because the amount of such expenses in any
specific period may not directly correlate to the underlying performance of our business operations and these
expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously
acquired tangible and intangible assets or the timing of new stock-based awards, as the case may be.
We use Adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part of our overall
assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate
the effectiveness of our business strategies and to communicate with our board of directors concerning our financial
performance.
We do not place undue reliance on Adjusted EBITDA as our only measure of operating performance. Adjusted
EBITDA should not be considered as a substitute for other measures of liquidity or financial performance reported in
accordance with GAAP. There are limitations to using non-GAAP financial measures, including that other companies may
calculate these measures differently than we do, that they do not reflect our capital expenditures or future requirements for
capital expenditures and that they do not reflect changes in, or cash requirements for, our working capital. We compensate for
the inherent limitations associated with using Adjusted EBITDA measures through disclosure of these limitations,
presentation of our financial statements in accordance with GAAP and reconciliation of Adjusted EBITDA to the most
directly comparable GAAP measure, net (loss) income.
The following table presents a reconciliation of net (loss) income to Adjusted EBITDA:
Year Ended December 31,
2011
2010
Net (loss) income .................................................... $
(1,231)
$
Acquisition-related deferred revenue
adjustment ......................................................
Depreciation, asset impairment and loss on sale
of asset............................................................
Amortization of intangible assets .......................
Interest expense, net ...........................................
Income tax (benefit) expense ..............................
Litigation-related expense ..................................
Stock-based compensation expense ....................
Acquisition-related expense ...............................
Adjusted EBITDA .................................................. $
706
11,539
18,006
2,868
(210)
1,298
22,618
865
56,459
$
67
—
10,371
10,675
5,510
719
—
7,340
621
35,303
2009
(in thousands)
28,429
$
2008
2007
$
(3,209)
$ (3,143)
—
—
—
9,231
5,784
4,528
(26,028)
—
2,805
844
25,593
9,847
2,095
2,152
703
—
1,476
—
$ 13,064
4,854
2,273
1,510
—
—
490
—
$ 5,984
$
The following table presents stock-based compensation included in each expense category:
Cost of revenue ....................................................... $
Product development ..............................................
Sales and marketing ................................................
General and administrative .....................................
Total stock-based compensation
2011
1,655
4,594
12,017
4,352
$
2008
2010
Year Ended December 31,
2009
(in thousands)
367
1,175
498
765
633
2,568
2,493
1,646
$
$
104
727
277
368
2007
$
48
251
110
81
expense ............................................................... $
22,618
$
7,340
$
2,805
$
1,476
$
490
49
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with
“Selected Consolidated Financial Data” and our audited consolidated financial statements and accompanying notes
included elsewhere in this filing. This discussion contains forward-looking statements, based on current expectations and
related to our plans, estimates, beliefs and anticipated future financial performance. These statements involve risks and
uncertainties and our actual results may differ materially from those anticipated in these forward-looking statements as a
result of many factors, including those set forth under “Risk Factors,” “Special Note Regarding Forward-Looking
Statements” and elsewhere in this filing.
Overview
We are a leading provider of on demand software solutions for the rental housing industry. Our broad range of property
management solutions enable owners and managers of single-family and a wide variety of multi-family rental property types
to manage their marketing, pricing, screening, leasing, accounting, purchasing and other property operations. We deliver our
on demand software solutions via the Internet through an integrated software platform that provides a single point of access
and a shared repository of prospect, resident and property data.
We derive a substantial majority of our revenue from sales of our on demand software solutions. We also derive
revenue from our professional and other services. A small percentage of our revenue is derived from sales of our on premise
software solutions to our existing on premise customers. Our on demand software solutions are sold pursuant to subscription
license agreements, and our on premise software solutions are sold pursuant to term or perpetual license agreements and
associated maintenance agreements. Typically, we price our solutions based primarily on the number of units the customer
manages with our solutions. For our insurance and transaction-based solutions, we price based on a fixed commission rate of
earned premiums or a fixed rate per transaction, respectively. We sell our solutions through our direct sales organization and
derive substantially all of our revenue from sales in the United States. Our revenue has increased from $140.9 million in 2009
to $258.0 million in 2011. The increase in revenue has primarily been driven by increased sales of our on demand software
solutions, a substantial amount of which has been derived from purchases of additional on demand software solutions by our
existing customers. In 2011, our on demand revenue represented 92.8% of our total revenue.
While the adoption of on demand software solutions in the rental housing industry is growing rapidly, it remains at a
relatively early stage of development. Additionally, there is a low level of penetration of our on demand software solutions in
our existing customer base. We believe these factors present us with significant opportunities to generate revenue through
sales of additional on demand software solutions. Our existing and potential customers base their decisions to invest in our
solutions on a number of factors, including general economic conditions. Accordingly, macroeconomic conditions negatively
impacted our business in 2011 and may continue to negatively impact our business.
Our company was formed in 1998 to acquire Rent Roll, Inc., which marketed and sold on premise property management
systems for the conventional and affordable multi-family rental housing markets. In June 2001, we released OneSite, our first
on demand property management system. Since 2002, we have expanded our on demand software solutions to include a
number of software-enabled value-added services that provide complementary sales and marketing, asset optimization, risk
mitigation, billing and utility management and spend management capabilities. In connection with this expansion, we have
allocated greater resources to the development and infrastructure needs of developing and increasing sales of our suite of on
demand software solutions. In addition, since July 2002, we have completed 18 acquisitions of complementary technologies
to supplement our internal product development and sales and marketing efforts and expand the scope of our solutions, the
types of rental housing properties served by our solutions and our customer base. As of December 31, 2011, we had
approximately 2,273 employees.
On August 11, 2010, our registration statement on Form S-1 (File No 333-166397) relating to our initial public offering
was declared effective by the Securities and Exchange Commission, or SEC. We sold 6,000,000 shares of common stock in
our initial public offering. Our common stock began trading on August 12, 2010 on the NASDAQ Global Select Stock
Market under the symbol “RP,” and the offering closed on August 17, 2010. Upon closing of our initial public offering, all
outstanding shares of our convertible preferred stock, including a portion of accrued but unpaid dividends on our outstanding
shares of Series A, Series A1 and Series B convertible preferred stock, were converted into 29,567,952 shares of common
stock.
On December 6, 2010, our registration statement on Form S-1 (File No 333-170667) relating to a public stock offering
was declared effective by the SEC. We sold an additional 4,000,000 shares of common stock in the offering. The offering
closed on December 10, 2010.
50
New Product Family
In August 2011, we announced our new product family, LeaseStar, which will consolidate and integrate products and
services related to our acquisitions of eREI, LevelOne, SeniorLiving.net, MTS and our suite of products and services
historically branded as Crossfire. We believe the LeaseStar product family will unify major organic and paid lead channels
into a single marketplace where consumers can find a rental unit and transact business by viewing real time availability,
pricing, pre-qualify and lease online.
Recent Acquisitions
In May 2011, we acquired substantially all of the assets of Compliance Depot LLC (“Compliance Depot”) for
approximately $22.5 million which included a cash payment of $19.2 million and three deferred payments of $1.1 million
each payable six, twelve and eighteen months after the acquisition date. The acquisition of Compliance Depot expands our
ability to provide vendor risk management and compliance software for the rental housing industry. Interfacing with vendors
through a branded platform, Compliance Depot allows property managers and owners to: track compliance with vendor
obligations to carry workers compensation and general liability insurance, identify vendor bankruptcy filings, liens, criminal
records, collections and professional license verification, confirm federal regulation compliance, such as The Patriot Act; as
well as manage contractual agreements and federal and state tax documents.
In July 2011, we acquired Senior-Living.com, Inc., operating under the name SeniorLiving.net (“SLN”), for a purchase
price consisting of a cash payment of $4.0 million at closing, additional cash payments of $0.5 million, half of which is due
on each of the first and second anniversaries of the acquisition date, and a deferred earn out payment of up to $0.5 million in
cash and up to 400,000 shares of our common stock, in each case payable based on the achievement of specified milestones
on or before June 30, 2014. The acquisition of SLN expands our lead generation capabilities into the senior living rental
housing market.
In August 2011, we acquired Multifamily Technology Solutions, Inc. (“MTS”), which owns the Internet listing service
for rental properties called MyNewPlace, pursuant to an Agreement and Plan of Merger. MTS continued as the surviving
corporation of the Merger and a wholly owned subsidiary of RealPage. We acquired MTS for a purchase price of $74.9
million, net of cash acquired, comprised of approximately $64.0 million in cash, 294,770 shares of RealPage restricted
common stock and the assumption of MTS stock options exercisable for 349,693 shares of RealPage common stock. The
acquisition of MTS adds a pay-for-performance Internet listing service, expands our suite of SAAS lead generation and
management tools and service delivery capabilities.
In January 2012, we acquired substantially all of the operating assets of Vigilan, Incorporated (“Vigilan”). A provider of
assisted living software-as-a-service, Vigilan products allow assisted living communities to monitor and schedule detailed
care, manage labor costs, provide accurate billing as well as compliance tools through its comprehensive compliance module.
We acquired Vigilan for a purchase price of $5.0 million consisting of a cash payment of $4.0 million and two additional
cash payments of up to $0.5 million each due 12 months and 24 months after the acquisition date.
Key Business Metrics
In addition to traditional financial measures, we monitor our operating performance using a number of financially and
non-financially derived metrics that are not included in our consolidated financial statements. We monitor the key
performance indicators reflected in the following table:
Year Ended December 31,
2010
(in thousands, except dollar per unit data)
2011
2009
Revenue:
Total revenue .........................................................................................
On demand revenue ...............................................................................
On demand revenue as a percentage of total revenue............................
Ending on demand units ............................................................................
Average on demand units ..........................................................................
Non-GAAP on demand revenue ................................................................
Non-GAAP on demand revenue per average on demand unit ...................
Adjusted EBITDA .....................................................................................
Adjusted EBITDA as a percentage of total revenue ..................................
$
$
$
$
$
257,979
239,436
$
$
92.8%
188,274
169,678
90.1%
7,302
6,574
240,142
36.53
56,459
6,066
5,249
169,678
32.33
35,303
$
$
$
$
$
$
$
$
140,902
128,377
91.1%
4,551
4,128
128,377
31.10
25,593
21.9%
18.8%
18.2%
51
On demand revenue. This metric represents the license and subscription fees for accessing our on demand software
solutions, typically licensed for one year terms, commission income from sales of renter’s insurance policies and transaction
fees for certain of our on demand software solutions. We consider on demand revenue to be a key business metric because we
believe the market for our on demand software solutions represents the largest growth opportunity for our business.
On demand revenue as a percentage of total revenue. This metric represents on demand revenue for the period
presented divided by total revenue for the same period. We use on demand revenue as a percentage of total revenue to
measure our success in executing our strategy to increase the penetration of our on demand software solutions and expand
our recurring revenue streams attributable to these solutions. We expect our on demand revenue to remain a significant
percentage of our total revenue although the actual percentage may vary from period to period due to a number of factors,
including the timing of acquisitions, professional and other revenue and on premise perpetual license sales and maintenance
fees resulting from our February 2010 acquisition.
Ending on demand units. This metric represents the number of rental housing units managed by our customers 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 customers’ properties is updated or supplemented, which could result in adjusting
the number of units previously reported. We expect ending on demand units will continue to increase in 2012 and 2013.
Non-GAAP on demand revenue. This metric represents on demand revenue adjusted to reverse the effect of the write
down of deferred revenue associated with purchase accounting for strategic acquisitions. We use this metric to evaluate our
on demand revenue as we believe its inclusion provides a more accurate depiction of on demand revenue arising from our
strategic acquisitions.
The following provides a reconciliation of non-GAAP on demand revenue:
On demand revenue ........................................................................................
Acquisition-related deferred revenue adjustment .......................................
Non-GAAP on demand revenue .....................................................................
$
$
239,436
706
240,142
2011
2010
(in thousands)
$ 169,678
—
$ 169,678
2009
$ 128,377
—
$ 128,377
Year Ended December 31,
Non-GAAP on demand revenue per average on demand unit. This metric represents non-GAAP on demand revenue for
the period presented divided by average on demand units for the same period. For interim periods, the calculation is
performed on an annualized basis. We calculate average on demand units as the average of the beginning and ending on
demand units for each quarter in the period presented. We monitor this metric to measure our success in increasing the
number of on demand software solutions utilized by our customers to manage their rental housing units, our overall revenue
and profitability.
Adjusted EBITDA. We define this metric as net (loss) income plus depreciation and asset impairment; amortization of
intangible assets; interest expense, net; income tax expense (benefit); stock-based compensation expense and acquisition-
related expense. In 2011, Adjusted EBITDA excludes litigation related expenses pertaining to the Yardi litigation as
discussed in Part I, Item 3 “Legal Proceedings.” Beginning in the second quarter of 2011, Adjusted EBITDA includes
acquisition-related deferred revenue adjustments. We believe that the use of Adjusted EBITDA is useful in evaluating our
operating performance because it excludes certain non-cash expenses, including depreciation, amortization and stock-based
compensation. Adjusted EBITDA is not determined in accordance with accounting principles generally accepted in the
United States, or GAAP, and should not be considered as a substitute for or superior to financial measures determined in
accordance with GAAP. For further discussion regarding Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net
income, refer to the table below. Our Adjusted EBITDA grew from approximately $25.6 million in 2009 to approximately
$56.5 million in 2011, as a result of our efforts to expand market share and increase revenue.
52
The following provides a reconciliation of net (loss) income to Adjusted EBITDA:
Net (loss) income .............................................................................................
Acquisition-related deferred revenue adjustment ........................................
Depreciation and asset impairment ..............................................................
Amortization of intangible assets ................................................................
Interest expense, net ....................................................................................
Income tax expense (benefit) .......................................................................
Litigation-related expense ...........................................................................
Stock-based compensation expense .............................................................
Acquisition-related expense ........................................................................
Adjusted EBITDA ...........................................................................................
$
$
Key Components of our Results of Operations
Revenue
2011
$
$
Year Ended December 31,
2010
(in thousands)
67
—
10,371
10,675
5,510
719
—
7,340
621
35,303
(1,231)
706
11,539
18,006
2,868
(210)
1,298
22,618
865
56,459
$
$
2009
28,429
—
9,231
5,784
4,528
(26,028)
—
2,805
844
25,593
We derive our revenue from three primary sources: our on demand software solutions; our on premise software
solutions; and our professional and other services. In 2011, 2010, 2009, we generated revenue of $258.0 million, $188.3
million and $140.9 million, respectively.
On Demand Revenue
Revenue from our on demand software solutions is comprised of license and subscription fees for accessing our on
demand software solutions, typically licensed for one year terms, commission income from sales of renter’s insurance
policies, and transaction fees for certain on demand software solutions, such as payment processing, spend management and
billing services. Typically, we price our on demand software solutions based primarily on the number of units the customer
manages with our solutions. For our insurance and transaction-based solutions, we price based on a fixed commission rate of
earned premiums or a fixed rate per transaction, respectively.
In 2011, 2010 and 2009, revenue from our on demand software solutions was approximately $239.4 million, $169.7
million and $128.4 million, respectively, representing approximately 92.8%, 90.1% and 91.1% of our total revenue for the
same periods. Revenue from our on demand software solutions has continued to increase in absolute dollars and as a
percentage of our total revenue as we have ceased actively marketing our legacy on premise software solutions to new
customers and as many of our existing on premise customers have transitioned to our on demand software solutions. We
expect our on demand revenue to continue to increase in absolute dollars and as a percentage of revenue in 2012, although
the actual percentage of revenue may vary from period to period due to a number of factors, including the impact of
acquisitions and revenue derived from our professional and other services related to our on demand software solutions.
On Premise Revenue
Our on premise software solutions are distributed to our customers and maintained locally on the customers’ hardware.
Revenue from our on premise software solutions is comprised of license fees under term and perpetual license agreements.
Typically, we have licensed our on premise software solutions pursuant to term license agreements with an initial term of one
year that include maintenance and support. Customers can renew their term license agreement for additional one-year terms
at renewal price levels. In February 2010, we completed a strategic acquisition of assets that included on premise software
solutions that were historically marketed and sold pursuant to perpetual license agreements and related maintenance
agreements.
We no longer actively market our legacy on premise software solutions to new customers, and only license our on
premise software solutions to a small portion of our existing on premise customers as they expand their portfolio of rental
housing properties. For the on premise software solutions acquired in February 2010, we expect many of these customers to
migrate to our on demand solutions over time; however, we will continue to support these on premise software solutions for
the foreseeable future and integrate our software-enabled value-added services into them.
53
In 2011, 2010 and 2009, revenue from our on premise software solutions was approximately $6.6 million, $8.5 million
and $3.9 million, respectively, representing approximately 2.6%, 4.5% and 2.7%, and of our total revenue for the same
periods, respectively. Revenue from our on premise software solutions has continued to decrease in absolute dollars as we
have ceased actively marketing our legacy on premise software solutions to new customers and as many of our existing on
premise customers have transitioned to our on demand software solutions. We expect our legacy on premise revenue to
decrease over time in absolute dollars and as a percentage of our total revenue. In addition, the actual percentage of revenue
may vary from period to period due to a number of factors, including the impact of our recent and potential future acquisition
of on premise software solutions.
Professional and Other Revenue
Revenue from professional and other services consists of consulting and implementation services, training and other
ancillary services. We complement our solutions with professional and other services for our customers willing to invest in
enhancing the value or decreasing the implementation time of our solutions. Professional and other services engagements are
typically time and material. In 2011, 2010 and 2009, revenue from professional and other services was approximately $12.0
million, $10.1 million $8.7 million, respectively, representing approximately 4.6%, 5.3% and 6.1% of our total revenue for
the same periods, respectively. We expect professional and other services will represent 10.0% or less of our total revenue in
2012 and 2013 consistent with our performance for the previous three years.
Cost of Revenue
Cost of revenue consists primarily of personnel costs related to our operations, support services, training and
implementation services, expenses related to the operation of our data center and fees paid to third-party service providers.
Personnel costs include salaries, bonuses, stock-based compensation and employee benefits. Cost of revenue also includes an
allocation of facilities costs, overhead costs and depreciation, as well as amortization of acquired technology related to
strategic acquisitions and amortization of capitalized development costs. We allocate facilities costs, overhead costs and
depreciation based on headcount. We expect our cost of revenue in 2012 and 2013 to increase in absolute dollars.
Operating Expenses
We classify our operating expenses into three categories: product development, sales and marketing, and general and
administrative. Our operating expenses primarily consist of personnel costs, costs for third-party contracted development,
marketing, legal, accounting and consulting services and other professional service fees. Personnel costs for each category of
operating expenses include salaries, bonuses, stock-based compensation and employee benefits for employees in that
category. In addition, our operating expenses include an allocation of our facilities costs, overhead costs and depreciation
based on headcount for that category, as well as amortization of purchased intangible assets resulting from our acquisitions.
Our operating expenses increased in absolute dollars in each of 2011 and 2010 as we have built infrastructure and added
employees across all categories in order to accelerate and support our growth and to expand our markets. We expect our
operating expenses in 2012 and 2013 to continue to increase in absolute dollars as compared to 2011 but decrease as a
percentage of revenue, as the capacity we have added in prior years is more fully utilized and we continue to create operating
leverage.
Product development. Product development expense consists primarily of personnel costs for our product development
employees and executives and fees to contract development vendors. Our product development efforts are focused primarily
on increasing the functionality and enhancing the ease of use of our on demand software solutions and expanding our suite of
on demand software solutions. In 2008 and 2011, we established a product development and service center in Hyderabad,
India and Manila, Philippines, respectively, to take advantage of strong technical talent at lower personnel costs compared to
the United States. We expect our product development expenses in 2012 and 2013 to increase in absolute dollars.
Sales and marketing. Sales and marketing expense consists primarily of personnel costs for our sales, marketing and
business development employees and executives, travel and entertainment and marketing programs. Marketing programs
consist of amounts paid for online advertising, including search engine optimization (“SEO”) and search engine marketing
(“SEM”), renter’s insurance and other advertising, tradeshows, user conferences, public relations, industry sponsorships and
affiliations and product marketing. In addition, sales and marketing expense includes amortization of certain purchased
intangible assets, including customer relationships and key vendor and supplier relationships obtained in connection with our
acquisitions. We expect our sales and marketing expense in 2012 and 2013 to increase in absolute dollars.
54
General and administrative. General and administrative expense consists of personnel costs for our executive, finance
and accounting, human resources, management information systems and legal personnel, as well as legal, accounting and
other professional service fees and other corporate expenses. We expect our general and administrative expense in 2012 and
2013 to increase in absolute dollars as compared to 2011.
Interest Expense, Net
Interest expense, net, consists primarily of interest income and interest expense. Interest income represents earnings
from our cash, cash equivalents and short-term investments. Interest expense for 2011, 2010 and 2009 is associated with our
term loan, revolver, secured promissory note, promissory note issued to preferred stockholders, capital lease obligations and
certain acquisition-related liabilities. Total amounts outstanding under our interest-bearing obligations at December 31, 2011,
2010 and 2009 include:
Term loan ........................................................................................................
Revolver ..........................................................................................................
Secured promissory note .................................................................................
Promissory notes issued to preferred stockholders .........................................
Capital lease obligations .................................................................................
Interest bearing acquisition-related liabilities .................................................
$
2011
—
50,312
—
—
65
1,420
$
As of December 31,
2010
(in thousands)
66,039
—
—
—
590
1,955
$
2009
33,688
—
10,000
8,173
2,129
2,470
Based on our current operations, we expect our interest expense in 2012 to remain consistent with 2011 expense.
Income Taxes
As of December 31, 2011, we had net operating loss carry forwards for federal and state income tax purposes of
approximately $168.8 million. If not utilized, our federal net operating loss carry forwards will begin to expire in 2020 and
the state operating losses will begin to expire in 2012. Net operating losses generated by us are not currently subject to the
Section 382 limitation; however certain net operating losses generated by subsidiaries prior to their acquisition by us are
subject to the Section 382 limitation. The limitation on these pre-acquisition net operating loss carryforwards will fully expire
in 2020. A cumulative change in ownership among material shareholders, as defined in Section 382 of the Internal Revenue
Code, during a three-year period may limit utilization of the federal net operating loss carryforwards.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with GAAP. In many cases, the accounting treatment
of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application,
while in other cases, management’s judgment is required in selecting among available alternative accounting standards that
allow different accounting treatment for similar transactions. The preparation of our consolidated financial statements and
related disclosures require us to make estimates, assumptions and judgments that affect the reported amount of assets,
liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical
experience and other factors that we believe to be reasonable under the circumstances. In some instances, we could
reasonably use different accounting estimates, and in some instances results could differ significantly from our estimates. We
evaluate our estimates and assumptions on an ongoing basis. To the extent that there are differences between our estimates
and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be
affected.
We believe that the assumptions and estimates associated with revenue recognition, accounts receivable, business
combinations, goodwill and other intangible assets with indefinite lives, impairment of long-lived assets, intangible assets,
stock-based compensation, income taxes and capitalized product development costs have the greatest potential impact on our
consolidated financial statements. Therefore, we believe the accounting policies discussed below are critical to understanding
our historical and future performance, as these policies relate to the more significant areas involving our management’s
judgments, assumptions and estimates.
55
Revenue Recognition
We derive our revenue from three primary sources: our on demand software solutions; our on premise software
solutions; and professional and other services. We commence revenue recognition when all of the following conditions are
met:
•
•
•
•
there is persuasive evidence of an arrangement;
the solution and/or service has been provided to the customer;
the collection of the fees is probable; and
the amount of fees to be paid by the customer is fixed or determinable.
For multi-element arrangements that include multiple solutions and/or services, we allocate arrangement consideration
to all deliverables that have stand-alone value based on their relative selling prices. In such circumstances, we utilize the
following hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows:
•
•
•
Vendor specific objective evidence (VSOE), if available. The price at which we sell the element in a separate
stand-alone transaction;
Third-party evidence of selling price (TPE), if VSOE of selling price is not available. Evidence from us or other
companies of the value of a largely interchangeable element in a transaction; and
Estimated selling price (ESP), if neither VSOE nor TPE of selling price is available. Our best estimate of the
stand-alone selling price of an element in a transaction.
Our process for determining ESP for deliverables without VSOE or TPE considers multiple factors that may vary
depending upon the unique facts and circumstances related to each deliverable. Key factors primarily considered in
developing ESP include prices charged by us for similar offerings when sold separately, pricing policies and approvals from
standard pricing and other business objectives.
From time to time, we sell on demand software solutions with professional services. In such cases, we allocate
arrangement consideration based on our estimated selling price of the on demand software solution and VSOE of the selling
price of the professional services.
On Demand Revenue
Our on demand revenue consists of license and subscription fees, transaction fees related to certain of our software-
enabled value-added services and commissions derived from us selling certain risk mitigation services.
License and subscription fees are comprised of a charge billed at the initial order date and monthly or annual
subscription fees for accessing our on demand software solutions.
The license fee billed at the initial order date is recognized as revenue on a straight-line basis over the longer of the
contractual term or the period in which the customer is expected to benefit, which we consider to be four years. Recognition
starts once the product has been activated. Revenue from monthly and annual subscription fees is recognized on a straight-
line basis over the access period.
As part of our risk mitigation services to the rental housing industry, we act as an insurance agent and derive
commission revenue from the sale of insurance products to individuals. The commissions are based upon a percentage of the
premium that the insurance company charges to the policyholder and are subject to forfeiture in instances where a
policyholder cancels prior to the end of the policy. If the policy is cancelled, our commissions are forfeited as a percent of the
unearned premium. As a result, we recognize the commissions related to these services ratably over the policy term as the
associated premiums are earned. Additionally, we earn a contingent commission based upon loss experience of the policies
sold by us. Our estimate of this contingent commission is recorded quarterly based on actual and estimated claims and losses.
We recognize revenue from transaction fees derived from certain of our software-enabled value-added services as the
related services are performed.
56
On Premise Revenue
Revenue from our on premise software solutions is comprised of an annual term license, which includes maintenance
and support. Customers can renew their annual term license for additional one-year terms at renewal price levels. We
recognize the annual term license on a straight-line basis over the license term.
In addition, we have arrangements that include perpetual licenses with maintenance and other services to be provided
over a fixed term. We allocate and defer revenue equivalent to the VSOE of fair value for the undelivered elements and
recognize the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue.
We have determined that we do not have VSOE of fair value for our customer support and professional services in these
specific arrangements. As a result, the elements within our multiple-element sales agreements do not qualify for treatment as
separate units of accounting. Accordingly, we account for fees received under multiple-element arrangements with customer
support or other professional services as a single unit of accounting and recognize the entire arrangement ratably over the
longer of the customer support period or the period during which professional services are rendered.
Professional and Other Revenue
Professional and other revenue is recognized as the services are rendered for time and material contracts. Training
revenues are recognized after the services are performed.
Accounts Receivable
For several of our solutions, we invoice our customers prior to the period in which service is provided. Accounts
receivable represent trade receivables from customers when we have invoiced for software solutions and/or services and we
have not yet received payment. We present accounts receivable net of an allowance for doubtful accounts. We maintain an
allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments, or
the customer cancelling prior to the service being rendered. In doing so, we consider the current financial condition of the
customer, the specific details of the customer account, the age of the outstanding balance, the current economic environment
and historical credit trends. As a result of a portion of our allowance being for services not yet rendered and, therefore, is
charged as an offset to deferred revenue, which does not have an effect on the statement of operations. Any change in the
assumptions used in analyzing a specific account receivable might result in an additional allowance for doubtful accounts
being recognized in the period in which the change occurs. For certain transactions, we have met the requirements to
recognize income in advance of physically invoing the customer. In these instances, we record an asset for the amount that
will be due from the customer upon invoicing.
Business Combinations
When we acquire businesses, we allocate the total consideration to the fair value of tangible assets and liabilities and
identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase
price requires management to make significant estimates in determining the fair values of assets acquired and liabilities
assumed, especially with respect to intangible assets. These estimates are based on the application of valuation models using
historical experience and information obtained from the management of the acquired companies. These estimates can include,
but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted average cost
of capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and
unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of
these estimates.
Goodwill and Other Intangible Assets with Indefinite Lives
We test goodwill and other intangible assets with indefinite lives for impairment separately on an annual basis in the fourth
quarter of each year. Additionally, we will test goodwill and other intangible assets with indefinite lives in the interim if
events and circumstances indicate that goodwill and other intangible assets with indefinite lives may be impaired. The events
and circumstances that we consider include significant under-performance relative to projected future operating results and
significant changes in our overall business and/or product strategies. We evaluate impairment of goodwill by first performing
a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required using a two-step process. The first step of the two-step test
involves a comparison of the fair value of a reporting unit with its carrying amount. If the carrying amount of the reporting
57
unit exceeds its fair value, the second step of the process involves a comparison of the fair value and carrying amount of the
goodwill of that reporting unit and determination of the impairment charge, if any. We evaluate other intangible assets with
indefinite lives by estimating the fair value of those assets based on estimated future earnings derived from the assets using
the income approach model. For those intangible assets with indefinite lives that have been determined to be inseparable due
to their interchangeable use, we have grouped into single units of accounting for purposes of testing for impairment. If the
carrying amount of the other intangible assets with indefinite lives exceeds the fair value, we would recognize an impairment
loss equal to the excess of carrying value over fair value. If an event occurs that would cause us to revise our estimates and
assumptions used in analyzing the value of our goodwill and other intangible assets with indefinite lives, the revision could
result in a non-cash impairment charge that could have a material impact on our financial results.
We recorded goodwill and other intangible assets with indefinite lives in conjunction with all our business acquisitions
completed since the beginning of 2008. We test goodwill for impairment based on a single reporting unit. We believe we
operate in a single reporting unit because our chief operating decision maker does not regularly review our operating results
other than at a consolidated level for purposes of decision making regarding resource allocation and operating performance.
Impairment of Long-lived Assets
We perform an impairment review of long-lived assets held and used whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment
review include, but are not limited to, significant under-performance relative to projected future operating results, significant
changes in the manner of our use of the acquired assets or our overall business and/or product strategies and significant
industry or economic trends. When we determine that the carrying value of a long-lived asset may not be recoverable based
upon the existence of one or more of these indicators, we determine the recoverability by comparing the carrying amount of
the asset to net future undiscounted cash flows that the asset is expected to generate. We would then recognize an impairment
charge equal to the amount by which the carrying amount exceeds the fair market value of the asset.
Intangible Assets
Intangible assets consist of acquired developed product technologies, acquired customer relationships, vendor
relationships, non-competition agreements and trade names. We record intangible assets at fair value and amortize those with
finite lives over the shorter of the contractual life or the estimated useful life. We estimate the useful lives of acquired
developed product technologies and customer relationships based on factors that include the planned use of each developed
product technology and the expected pattern of future cash flows to be derived from each developed product technology and
existing customer relationships. We include amortization of acquired developed product technologies in cost of revenue,
amortization of acquired customer relationships in sales and marketing expenses and amortization of vendor relationships and
non-competition agreements in general and administrative expenses in our consolidated statements of operations.
Stock-Based Compensation
Our share-based compensation is measured on the grant date based on the fair value of the award and is recognized as
an expense over the requisite service period, which is generally the vesting period, on a straight-line basis.
The fair value of option awards is calculated through the use of option pricing models. These models require subjective
assumptions regarding future share price volatility and the expected life of each option grant.
The fair value of employee stock options was estimated at the grant date using the Black-Scholes option pricing model
by applying the following weighted average assumptions:
Risk-free interest rates ..............................................................................................................................................
Expected option life (in years) ..................................................................................................................................
Dividend yield ..........................................................................................................................................................
Expected volatility ....................................................................................................................................................
0.9-5.1%
5-6
0%
49-60%
At each stock option grant date, we utilized peer group data to calculate our expected volatility. Expected volatility was
based on historical and expected volatility rates of comparable publicly traded peers. Expected life is computed using the
mid-point between the vesting period and contractual life of the options granted. The risk-free interest rate was based on the
treasury yield rate with a maturity corresponding to the expected option life assumed at the grant date.
Changes to the underlying assumptions may have a significant impact on the underlying value of the stock options,
which could have a material impact on our consolidated financial statements.
58
Prior to our initial public offering, we granted stock options at exercise prices above the fair value of our common stock
as of the grant date, as determined by our compensation committee on a contemporaneous basis. Given the absence of any
active market for our common stock, the fair value of the common stock underlying stock options granted was determined by
our compensation committee, with input from our management. In arriving at these valuations, our compensation committee
and management also considered contemporaneous third-party valuations. Options granted subsequent to our initial public
offering have been granted at fair market value as of the date of grant.
The fair value of our time-based restricted stock awards is based on the closing price on the date of grant. For our
performance-based restricted stock awards, we recognize compensation expense based on the probability of achievement of
the performance condition.
Income Taxes
Income taxes are provided based on the liability method, which results in income tax assets and liabilities arising from
temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method
requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which
the rate change was enacted. The liability method also requires that the deferred tax assets be reduced by a valuation
allowance unless it is more likely than not that the assets will be realized.
We may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. Upon our adoption of the
related standard, there was no liability for uncertain tax positions due to the fact that there were no material identified tax
benefits that were considered uncertain positions.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. We consider
whether a valuation allowance is needed on our deferred tax assets by evaluating all positive and negative evidence relative to
our ability to recover deferred tax assets, including scheduled reversals of deferred tax liabilities, projected future taxable
income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical
results, if any, and incorporate assumptions including the amount of future state, federal and foreign pretax operating income,
the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies, if any. These
assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and
estimates we are using to manage the underlying businesses. Given the nature of our recurring revenue streams, we believe
we have a reasonable basis to estimate future taxable income.
Capitalized Product Development Costs
We capitalize specific product development costs, including costs to develop software products or the software
components of our solutions to be marketed to our customers, as well as software programs to be used solely to meet our
internal needs. The costs incurred in the preliminary stages of development related to research, project planning, training,
maintenance and general and administrative activities, and overhead costs are expensed as incurred. The costs of relatively
minor upgrades and enhancements to the software are also expensed as incurred. Once an application has reached the
development stage, internal and external costs incurred in the performance of application development stage activities,
including materials, services and payroll-related costs for employees are capitalized, if direct and incremental, until the
software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial
testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will
result in additional functionality. Capitalized costs are recorded as part of property and equipment. Internal use software is
amortized on a straight-line basis over its estimated useful life, generally three years. We capitalized $2.3 million and $1.4
million of product development costs during the years ended December 31, 2011 and 2010, respectively, and recognized
amortization expense of $1.8 million, $1.3 million and $1.3 million, during the years ended December 31, 2011, 2010 and
2009, respectively, included as a component of cost of revenue. Unamortized product development cost was $3.7 million,
$3.2 million and at December 31, 2011 and 2010, respectively. Management evaluates the useful lives of these assets on an
annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability
of these assets. There were no impairments to internal use software during the years ended December 31, 2011, 2010 or 2009.
Results of Operations
The following tables set forth our results of operations for the specified periods. The period-to-period comparison of
financial results is not necessarily indicative of future results.
59
Consolidated Statements of Operations Data
Year Ended December 31,
2011
2010
(in thousands)
2009
Revenue:
On demand ......................................................................................................
On premise ......................................................................................................
Professional and other .....................................................................................
Total revenue ...............................................................................................
Cost of revenue(1) ...............................................................................................
Gross profit ..........................................................................................................
Operating expense:
Product development(1) ..................................................................................
Sales and marketing(1) ....................................................................................
General and administrative(1) .........................................................................
Total operating expense ..............................................................................
Operating income .................................................................................................
Interest expense and other, net .............................................................................
Net (loss) income before taxes .............................................................................
Income tax expense (benefit) ...............................................................................
Net (loss) income .................................................................................................
_________________
(1)
Includes stock-based compensation expense as follows:
Cost of revenue ....................................................................................................
Product development ...........................................................................................
Sales and marketing .............................................................................................
General and administrative ..................................................................................
$
$
$ 239,436
6,581
11,962
257,979
105,717
152,262
44,561
63,923
41,968
150,452
1,810
(3,251)
(1,441)
(210)
(1,231)
$ 169,678
8,545
10,051
188,274
79,044
109,230
36,922
37,693
28,328
102,943
6,287
(5,501)
786
719
67
$
$ 128,377
3,860
8,665
140,902
58,513
82,389
27,446
27,804
20,210
75,460
6,929
(4,528)
2,401
(26,028)
28,429
$
Year Ended December 31,
2010
2011
2009
1,655
4,594
12,017
4,352
(in thousands)
$
633
2,568
2,493
1,646
$
367
1,175
498
765
The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those
periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
Year Ended December 31,
2011
2009
(as a percentage of total revenue)
2010
Revenue:
On demand ......................................................................................................
On premise ......................................................................................................
Professional and other .....................................................................................
Total revenue ...............................................................................................
Cost of revenue ....................................................................................................
Gross profit ..........................................................................................................
Operating expense:
Product development .......................................................................................
Sales and marketing .........................................................................................
General and administrative ..............................................................................
Total operating expenses .............................................................................
Operating income .................................................................................................
Interest expense and other, net .............................................................................
Net (loss) income before taxes .............................................................................
Income tax expense (benefit) ...............................................................................
Net (loss) income .................................................................................................
92.8%
2.6
4.6
100.0
41.0
59.0
17.3
24.7
16.3
58.3
0.7
(1.2)
(0.5)
0.0
(0.5)
90.1%
4.5
5.3
100.0
42.0
58.0
19.6
20.0
15.0
54.7
3.3
(2.9)
0.4
0.4
0.0
91.1%
2.7
6.1
100.0
41.5
58.5
19.5
19.7
14.3
53.5
4.9
(3.2)
1.7
(18.5)
20.2
60
Year Ended December 31, 2011 and 2010
Revenue
Revenue:
Year Ended December 31,
2011
2010
Change % Change
(in thousands, except dollar per unit data)
On demand .......................................................................... $
On premise ..........................................................................
Professional and other .........................................................
Total revenue ................................................................... $
On demand unit metrics:
Ending on demand units ......................................................
Average on demand units ....................................................
Non-GAAP on demand revenue .......................................... $
Non-GAAP on demand revenue per average on demand
239,436
6,581
11,962
257,979
7,302
6,574
240,142
unit .................................................................................. $
36.53
$
$
$
$
169,678
8,545
10,051
188,274
6,066
5,249
169,678
$ 69,758
(1,964)
1,911
$ 69,705
1,236
1,325
$ 70,464
32.33
$
4.20
41.1%
(23.0)
19.0
37.0
20.4
25.2
41.5
13.0
On demand revenue. Our on demand revenue increased $69.8 million, or 41.1%, in 2011 compared to 2010 due to an
increase in rental property units managed with our on demand solutions and an increase in the number of our on demand
solutions utilized by our existing customer base as well as an increase in revenue resulting from our 2011 and 2010
acquisitions.
On premise revenue. On premise revenue decreased $2.0 million, or 23.0%, in 2011 compared to 2010. As of December
31, 2011, we have completed migrating our legacy on premise customer base (i.e. RentRoll and HUDManager) to our on
demand property management systems. We no longer actively market our legacy on premise software solutions to new
customers and only market and support our acquired on premise software solutions. We expect on premise revenue to
continue to decline over time as we transition acquired on premise customers to our on demand property management
systems.
Professional and other revenue. Professional and other services revenue increased $1.9 million, or 19.0%, in 2011
compared to 2010, primarily due to an increase in revenue from training and consulting services.
On demand unit metrics. As of December 31, 2011, one or more of our on demand solutions was utilized in the
management of 7.3 million rental property units, representing an increase of 1.2 million units, or 20.4% compared to 2010.
The increase in the number of rental property units managed by one or more of our on demand solutions was due to new
customer sales and marketing efforts and our 2011 acquisitions in which contributed 8.9% of total ending on demand units as
of December 31, 2011.
As of December 31, 2011, annualized non-GAAP on demand revenue per average on demand unit was $36.53,
representing an increase of $4.20, or 13.0%, compared to 2010, primarily due to improved penetration of our on demand
solutions into our customer base.
Cost of Revenue
Year Ended December 31,
2011
2010
Change % Change
Cost of revenue .........................................................................
Depreciation and amortization..................................................
Total cost of revenue ............................................................
$
$
90,663 $
15,054
105,717 $
(in thousands)
66,677 $
12,367
79,044 $
23,986
2,687
26,673
36.0%
21.7
33.7
Cost of revenue. Total cost of revenue increased $26.7 million, or 33.7%, in 2011 compared to 2010. The increase in
cost of revenue was primarily due to: a $7.9 million increase from costs related to the increased sales of our solutions, which
includes investments in infrastructure and other support services; a $15.1 million increase in personnel expense primarily
related to our 2011 and 2010 acquisitions; a $2.0 million increase in non-cash amortization of acquired technology as a result
of our 2010 and 2011 acquisitions; a $0.7 million increase in property and equipment depreciation expense resulting from
expanding our infrastructure to support revenue delivery activities; and a $1.0 million increase in stock-based compensation
related to our professional services personnel and data center operations personnel. Cost of revenue as a percentage of total
revenue was 41.0% for the year ended December 31, 2011 as compared to 42.0% for the same period in 2010.
61
Operating Expenses
Year Ended December 31,
2011
2010
Change % Change
Product development ................................................................
Depreciation and amortization ..................................................
Total product development expense .....................................
$
$
42,672
1,889
44,561
$
$
(in thousands)
34,692 $ 7,980
(341)
2,230
36,922 $ 7,639
23.0%
(15.3)
20.7
Product development Total product development expense increased $7.6 million, or 20.7%, in 2011 compared to 2010.
The increase in product development expense was primarily due to: a $4.6 million increase in personnel related expense
primarily related to product development groups added as a result of our 2011 and 2010 acquisitions combined with the
associated costs to support our growth initiatives; a $2.0 million increase in stock-based compensation related to product
development personnel expense; a $0.8 million increase in web hosting and other information technology costs; a $0.5
million increase in facilities expense; and $0.3 million decrease in depreciation expense.
Year Ended December 31,
2011
2010
Change % Change
Sales and marketing ................................................................... $
Depreciation and amortization...................................................
Total sales and marketing expense ........................................ $
53,913
10,010
63,923
$
$
(in thousands)
$
32,893
4,800
37,693
$
21,020
5,210
26,230
63.9%
108.5
69.6
Sales and marketing. Total sales and marketing expense increased $26.2 million, or 69.6%, in 2011 compared to 2010.
The increase in sales and marketing expense was primarily due to: a $9.5 million increase in stock-based compensation
related to sales and marketing personnel and a $6.9 million increase in salaries, bonuses and employee benefits for sales and
marketing personnel. We have increased our sales force head count from 116 at December 31, 2010 to 163 at December 31,
2011, which includes sales personnel added as a result of our 2011 acquisitions and overall company growth. Additional
factors contributing to the increase in sales and marketing expense include a $0.9 million increase in marketing program
expense as a part of our strategy to expand our market share and further penetrate our existing customer base with sales of
additional on demand solutions; $2.3 million increase from SEO and SEM activity driven by our 2011 acquisitions of
MyNewPlace and SeniorLiving.net; a $0.9 million increase in travel related expense; a $5.3 million increase in non-cash
amortization expense as a result of our 2010 and 2011 acquisitions; and a $0.4 million increase in other general sales and
marketing expense.
Year Ended December 31,
2011
2010
Change % Change
(in thousands)
General and administrative ........................................................ $
Depreciation and amortization...................................................
Total general and administrative expense .............................. $
39,774
2,194
41,968
$
$
26,767
1,561
28,328
$ 13,007
633
$ 13,640
48.6%
40.6
48.2
General and administrative. Total general and administrative expense increased $13.6 million, or 48.2%, in 2011
compared to 2010. The increase in general and administrative expense was primarily due to: a $4.7 million increase in
personnel expense related to accounting, management information systems, legal, and human resources staff to support the
growth in our business combined with the increase from our 2011 acquisitions; a $0.8 million increase in facilities expense, a
$2.7 million increase in stock-based compensation related to general and administrative personnel; a $1.2 million increase in
professional fees primarily resulting from our 2011 acquisitions; a $0.6 million in depreciation expense; a $0.4 million
increase in travel expense; a $0.5 million increase in insurance expense; a $0.5 million increase in information technology
costs; a $0.7 million increase in sales and property taxes; $1.1 million increase in legal fees related to litigation; a $0.4
million decrease from the fair value adjustment of acquisition-related liabilities; and $0.8 million increase in other general
and administrative expense.
Interest Expense and Other, Net
Interest expense and other, net, decreased $2.2 million, or 40.9%, in 2011 compared to 2010. The change was primarily
due to a decrease associated with the early extinguishment of our preferred stockholder notes payable in connection with our
initial public offering combined with the effect of lower interest rates under our amended credit agreement. See “Long-term
Debt Obligations” for further discussion regarding our amended credit agreement. This decrease was offset by an increase in
other losses of $0.4 million related to the sale of a non-operating asset held for sale.
62
Year Ended December 31, 2010 and 2009
Revenue
Revenue:
Year Ended December 31,
2010
2009
Change % Change
(in thousands, except dollar per unit data)
On demand ........................................................................... $
On premise ...........................................................................
Professional and other ..........................................................
Total revenue .................................................................... $
169,678
8,545
10,051
188,274
On demand unit metrics:
Ending on demand units .......................................................
Average on demand units .....................................................
On demand revenue per average on demand unit................. $
6,066
5,249
32.33
$
$
$
128,377
3,860
8,665
140,902
$ 41,301
4,685
1,386
$ 47,372
4,551
4,128
31.10
1,515
1,121
1.23
$
32.2%
121.4
16.0
33.6
33.3
27.2
4.0
On demand revenue. Our on demand revenue increased $41.3 million, or 32.2%, in 2010 compared to 2009, primarily
due to an increase in rental property units managed with our on demand solutions and an increase in the number of our on
demand solutions utilized by our existing customer base.
On premise revenue. On premise revenue increased $4.7 million, or 121.4%, in 2010 compared to 2009, primarily as a
result of our February 2010 acquisition. During February 2010, we completed a strategic acquisition of assets that included
on premise software solutions that have been historically marketed and sold pursuant to perpetual license agreements and
related maintenance agreements. For the year ended December 31, 2010, the February 2010 acquisition contributed $6.6
million of revenue related to maintenance agreements and perpetual license sales. The revenue increase from the February
2010 acquisition was partially offset by our decision to cease actively marketing our legacy on premise solutions in 2003 and
our efforts to migrate customers of our on premise solutions to our on demand solutions. For the on premise software
solutions acquired in February 2010, we expect many of these customers to migrate to our on demand solutions over time;
however, we will continue to support these software solutions for the foreseeable future and integrate our software-enabled
value-added services into them.
Professional and other revenue. Professional and other services revenue increased $1.4 million, or 16.0%, in 2010
compared to 2009, primarily due to an increase in revenue from consulting services, partially offset by lower infrastructure
services and training volumes.
Total revenue. Our total revenue increased $47.4 million, or 33.6% , in 2010 compared 2009, primarily due to an
increase in rental property units managed with our on demand solutions and improved penetration of our on demand solutions
into our customer base.
On demand unit metrics. As of December 31, 2010, one or more of our on demand solutions was utilized in the
management of 6.1 million rental property units, representing an increase of 1.5 million units, or 33.3% compared to 2009.
The increase in the number of rental property units managed by one or more of our on demand solutions was due to new
customer sales and marketing efforts and our 2010 acquisitions in which contributed 14.1% of ending on demand units as of
December 31, 2010.
As of December 31, 2010, our annualized on demand revenue per average on demand unit was $32.33, representing an
increase of $1.23, or 4.0%, compared to 2009, primarily due to improved penetration of our on demand solutions into our
customer base.
Cost of Revenue
Cost of revenue .......................................................................
Depreciation and amortization................................................
Total cost of revenue ..........................................................
$
$
66,677
12,367
79,044
$ 51,260
7,253
$ 58,513
$ 15,417
5,114
$ 20,531
30.1%
70.5
35.1
Year Ended December 31,
2010
2009
Change % Change
(in thousands)
63
Cost of revenue. Total cost of revenue increased $20.5 million, or 35.1%, in 2010 compared to 2009. The increase in
cost of revenue was primarily due to: a $15.1 million increase from costs related to the increased sales of our solutions, which
includes investments in infrastructure and other support services; a $4.3 million increase in non-cash amortization of acquired
technology as a result of our 2009 and 2010 acquisitions; a $0.8 million increase in property and equipment depreciation
expense resulting from expanding our infrastructure to support revenue delivery activities; and a $0.3 million increase in
stock-based compensation related to our professional services personnel and data center operations personnel. Cost of
revenue as a percentage of total revenue was 42.0% for the year ended December 31, 2010 as compared to 41.5% for the
same period in 2009. The increase as a percentage of total revenue was primarily due to an increase in non-cash amortization
of acquired technology as a result of our 2009 and 2010 acquisitions.
Operating Expenses
Year Ended December 31,
2010
2009
Change % Change
(in thousands)
Product development .............................................................. $
Depreciation and amortization ................................................
Total product development expense ................................... $
34,692
2,230
36,922
$
$
25,277
2,169
27,446
$
$
9,415
61
9,476
37.2%
2.8
34.5
Product development Total product development expense increased $9.5 million, or 34.5%, in 2010 compared to 2009.
The increase in product development expense was primarily due to: a $7.0 million increase in personnel expense primarily
related to product development groups added as a result of our 2009 and 2010 acquisitions combined with the associated
costs to support our growth initiatives; a $1.4 million increase in stock-based compensation related to product development
personnel; a $0.6 million increase in third-party software maintenance expense; and $0.5 million increase in other general
product development expense.
Year Ended December 31,
2010
2009
Change % Change
(in thousands)
Sales and marketing ................................................................
Depreciation and amortization ................................................
Total sales and marketing expense .....................................
$
$
32,893
4,800
37,693
$
$
23,744
4,060
27,804
$
$
9,149
740
9,889
38.5%
18.2
35.6
Sales and marketing. Total sales and marketing expense increased $9.9 million, or 35.6%, in 2010 compared to 2009.
The increase in sales and marketing expense was primarily due to: a $4.0 million increase in personnel expense. We have
increased our sales force head count from 95 at December 31, 2009 to 116 at December 31, 2010, which includes sales
personnel added as a result of our 2010 acquisitions. Additional factors contributing to the increase in sales and marketing
expense include a $1.8 million increase in marketing program expense as part of our strategy to expand our market share and
further penetrate our existing customer base with sales of additional on demand solutions; a $2.0 million increase in stock-
based compensation related to sales and marketing personnel; a $0.6 million increase in travel related expense; a $0.6 million
increase in non-cash amortization expense as a result of our 2009 and 2010 acquisitions; and a $0.9 million increase in other
general sales and marketing expense.
General and administrative ..................................................... $
Depreciation and amortization ................................................
Total general and administrative expense .......................... $
26,767
1,561
28,328
$
$
(in thousands)
18,923
1,287
20,210
$
$
7,844
274
8,118
41.5%
21.3
40.2
Year Ended December 31,
2010
2009
Change % Change
General and administrative. Total general and administrative expense increased $8.1 million, or 40.2%, in 2010
compared to 2009. The increase in general and administrative expense was primarily due to: a $4.3 million increase in
personnel expense related to accounting, management information systems, legal, and human resources staff to support the
growth in our business as well as provide the necessary organizational structure to support public company requirements; a
$0.9 million increase in facilities expense primarily as a result of our 2009 and 2010 acquisitions, a $0.9 million increase in
stock-based compensation related to general and administrative personnel; a $0.6 million increase in professional fees; a $0.3
million in depreciation expense; a $0.3 million increase in insurance expense; and $0.8 million increase in other general and
administrative expense.
64
Interest Expense and Other, Net
Interest expense, net, increased $1.0 million, or 21.5%, in 2010 compared to 2009. The change in interest expense, net,
was primarily due to: $0.5 million of accelerated interest expense associated with the early extinguishment of notes issued to
our preferred stockholders in payment of dividends payable during the third quarter of 2010; $0.2 million of penalties
incurred in connection with the early extinguishment of our secured subordinated promissory notes during the third quarter of
2010; and higher average debt balances related to the financing of our 2009 and 2010 acquisitions.
Provision for Taxes
As of December 31, 2010, we incurred tax expense of $0.7 million resulting from net income in foreign jurisdictions;
deferred income taxes at a federal level as a result of net operating loss utilization; and state taxes where it is considered an
income tax for financial reporting purposes but is assessed on adjusted gross revenue rather than adjusted net income.
Quarterly Results of Operations
The following table presents our unaudited consolidated quarterly results of operations for the eight fiscal quarters
ended December 31, 2011. This information is derived from our unaudited consolidated financial statements, and includes all
adjustments, consisting only of normal recurring adjustments, that we consider necessary for fair statement of our financial
position and operating results for the quarters presented. Operating results for these periods are not necessarily indicative of
the operating results for a full year. Historical results are not necessarily indicative of the results to be expected in future
periods. You should read this data together with our consolidated financial statements and the related notes to these financial
statements included elsewhere in this filing.
December 31,
2011
September 30,
2011
June 30,
2011
March 31,
2011
Three Months Ended,
December 31,
2010
September 30,
2010
June 30,
2010
March 31,
2010
Revenue:
On demand ...........................................................................................................
On premise ...........................................................................................................
Professional and other ..........................................................................................
Total revenue ............................................................................................................
Cost of revenue(1) ................................................................................................
Gross profit ...............................................................................................................
Operating expense:
Product development(1) .......................................................................................
Sales and marketing(1) .........................................................................................
General and administrative(1) ..............................................................................
Total operating expense ..................................................................................
Operating income (loss) ............................................................................................
Interest expense and other, net ..................................................................................
Net income (loss) before taxes ..................................................................................
Income tax expense (benefit) ....................................................................................
Net income (loss) ......................................................................................................
$
$
Net income (loss) attributable to common stockholders
Basic ................................................................................................................
Diluted .............................................................................................................
Net income (loss) per share attributable to common stockholders
Basic ................................................................................................................
Diluted .............................................................................................................
_________________
$
$
66,695
1,536
2,910
71,141
27,639
43,502
12,478
18,931
10,778
42,187
1,315
(669)
646
405
241
241
241
0.00
0.00
(in thousands)
62,765
1,772
3,118
67,655
27,585
40,070
11,230
17,688
11,840
40,758
(688)
(684)
(1,372)
(266)
(1,106)
(1,106)
(1,106)
(0.02)
(0.02)
$ 57,039
1,628
2,968
61,635
25,810
35,825
10,537
14,510
9,574
34,621
1,204
(732)
472
190
282
$
$
$
282
282
0.00
0.00
$
$
52,937
1,645
2,966
57,548
24,683
32,865
10,316
12,794
9,776
32,886
(21)
(1,166)
(1,187)
(539)
(648)
(648)
(648)
(0.01)
(0.01)
$
49,285
2,126
2,648
54,059
22,449
31,610
10,491
11,900
8,098
30,489
1,121
(752)
369
555
(186) $
(186)
(186)
0.00
0.00
43,097 $ 40,089
2,424
2,127
2,296
2,804
44,809
48,028
18,534
20,203
26,275
27,825
9,127
9,428
6,969
25,524
2,301
(1,822)
479
187
292 $
8,989
8,825
6,739
24,553
1,722
(1,463)
259
95
164
$
$
(327)
(327)
(0.01)
(0.01)
(807)
(807)
(0.03)
(0.03)
37,207
1,868
2,303
41,378
17,858
23,520
8,315
7,540
6,522
22,377
1,143
(1,464)
(321)
(118)
(203)
(1,353)
(1,353)
(0.05)
(0.05)
(1)
Includes stock-based compensation expense as follows:
December 31,
2011
September 30,
2011
June 30,
2011
March 31,
2011
December 31,
2010
September 30,
2010
June 30,
2010
March 31,
2010
Three Months Ended,
(in thousands)
Cost of revenue ...................................................................................
Product development ..........................................................................
Sales and marketing ............................................................................
General and administrative .................................................................
Total stock-based compensation expense ........................................
$
$
586
1,251
3,224
1,327
6,388
$
$
459
1,258
3,433
1,258
6,408
$
312
1,105
2,627
925
$ 4,969
$
$
298
980
2,733
842
4,853
$
$
226
904
1,952
513
3,595
$
$
140
627
201
391
1,359
$
$
144
530
176
442
1,292
$
$
123
507
164
300
1,094
65
The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those
periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
Revenue:
On demand ...........................................................................
On premise ...........................................................................
Professional and other .........................................................
Total revenue ..............................................................................
Cost of revenue:
Software and services ..........................................................
Gross profit ........................................................................................
Operating expense:
Product development ...........................................................
Sales and marketing .............................................................
General and administrative ..................................................
Total operating expenses ..............................................
Operating income (loss) .....................................................................
Interest expense and other, net ...........................................................
Net income (loss) before taxes ...........................................................
Income tax expense (benefit) .............................................................
Net income (loss) ...............................................................................
December 31,
2011
September 30,
2011
June 30,
2011
March 31,
2011
December 31,
2010
September 30,
2010
June 30,
2010
March 31,
2010
(as a percentage of total revenue)
Three Months Ended,
93.8%
2.2
4.0
100.0
38.9
61.1
17.5
26.6
15.2
59.3
1.8
(0.9)
0.9
0.6
0.3
92.8%
2.6
4.6
100.0
92.5%
2.6
4.9
100.0
92.0%
2.9
5.2
100.0
40.8
59.2
16.6
26.1
17.5
60.2
(1.0)
(1.0)
(2.0)
(0.4)
(1.6)
41.9
58.1
17.1
23.5
15.5
56.1
2.0
(1.2)
0.8
0.3
0.5
42.9
57.1
17.9
22.2
17.0
57.1
0.0
(2.0)
(2.1)
(0.9)
(1.1)
91.2%
3.9
4.9
100.0
41.5
58.5
19.4
22.0
15.0
56.4
2.1
(1.4)
0.7
1.0
(0.3)
89.7%
4.4
5.8
100.0
89.5%
5.4
5.1
100.0
89.9%
4.5
5.6
100.0
42.1
57.9
19.0
19.6
14.5
53.1
4.8
(3.8)
1.0
0.4
0.6
41.4
58.6
20.1
19.7
15.0
54.8
3.9
(3.3)
0.6
0.2
0.4
43.2
56.8
20.1
18.2
15.8
54.1
2.8
(3.5)
(0.8)
(0.3)
(0.5)
Reconciliation of Quarterly Non-GAAP Financial Measures
Our investor and analyst presentations include Adjusted EBITDA. We define this metric as net income (loss) plus
depreciation and asset impairment; amortization of intangible assets; interest expense, net; income tax expense (benefit);
stock-based compensation expense and acquisition-related expense. In 2011, Adjusted EBITDA excludes litigation related
expenses pertaining to the Yardi litigation as discussed in Part I, Item 3 “Legal Proceedings.” Beginning in the second quarter
of 2011, Adjusted EBITDA includes acquisition-related deferred revenue adjustments. We believe that the use of Adjusted
EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it
provides them with an additional tool to compare business performance across companies and across periods. We believe
that:
•
•
Adjusted EBITDA provides investors and other users of our financial information consistency and comparability
with our past financial performance, facilitates period-to-period comparisons of operations and facilitates
comparisons with our peer companies, many of which use similar non-GAAP financial measures to supplement
their GAAP results; and
it is useful to exclude certain non-cash charges, such as depreciation and asset impairment, amortization of
intangible assets and stock-based compensation and non-core operational charges, such as acquisition-related
expense, from Adjusted EBITDA because the amount of such expenses in any specific period may not directly
correlate to the underlying performance of our business operations and these expenses can vary significantly
between periods as a result of new acquisitions, full amortization of previously acquired tangible and intangible
assets or the timing of new stock-based awards, as the case may be.
We use Adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part of our overall
assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate
the effectiveness of our business strategies and to communicate with our board of directors concerning our financial
performance.
We do not place undue reliance on Adjusted EBITDA as our only measure of operating performance. Adjusted
EBITDA should not be considered as a substitute for other measures of liquidity or financial performance reported in
accordance with GAAP. There are limitations to using non-GAAP financial measures, including that other companies may
calculate these measures differently than we do, that they do not reflect our capital expenditures or future requirements for
capital expenditures and that they do not reflect changes in, or cash requirements for, our working capital. We compensate for
the inherent limitations associated with using the Adjusted EBITDA measures through disclosure of these limitations,
presentation of our financial statements in accordance with GAAP and reconciliation of Adjusted EBITDA to the most
directly comparable GAAP measure, net income (loss).
66
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the eight fiscal quarters
ended December 31, 2011:
December 31,
2011
September 30,
2011
June 30,
2011
Three Months Ended,
March 31,
2011
December 31,
2010
September 30,
2010
June 30,
2010
March 31,
2010
Net income (loss) ...............................................................................
$
241
$
(1,106)
$
282
$
(in thousands)
(648)
$
(186)
$
292
$
164
$
(203)
Acquisition-related deferred revenue adjustment ..............................
Depreciation and asset impairment ....................................................
Amortization of intangible assets.......................................................
Interest expense, net ...........................................................................
Income tax expense (benefit) .............................................................
Litigation related expense ..................................................................
Stock-based compensation expense ...................................................
Acquisition-related expense ...............................................................
Adjusted EBITDA .............................................................................
$
186
2,969
4,720
669
405
337
6,388
(334)
15,581
$
276
2,696
4,749
684
(266)
605
6,408
969
15,015
244
2,750
4,491
732
190
36
4,969
44
$ 13,738
—
3,124
4,046
783
(539)
320
4,853
186
12,125
$
$
—
2,714
3,419
751
555
—
3,595
168
11,016
$
—
2,606
2,760
1,823
187
—
1,359
60
9,087
—
2,595
2,282
1,472
95
—
1,292
68
$ 7,968
$
—
2,456
2,214
1,464
(118)
—
1,094
324
7,231
Liquidity and Capital Resources
Prior to our initial public offering, we financed our operations primarily through private placements of convertible
preferred stock and common stock, secured credit facilities with commercial lenders, a private placement of subordinated
debt securities and cash provided by operating activities. On August 11, 2010, our registration statement on Form S-1 (File
No. 333-166397) relating to our initial public offering was declared effective by the SEC. We sold 6,000,000 shares of
common stock in our initial public offering. On December 3, 2010, our registration statement on Form S-1 (File No 333-
170667) relating to a public stock offering was declared effective by the SEC. We sold an additional 4,000,000 shares of
common stock in the offering. As of December 31, 2011, our 2010 stock offerings resulted in proceeds, net of transaction
expenses, of $155.2 million.
Our primary sources of liquidity as of December 31, 2011 consisted of $51.3 million of cash and cash equivalents,
$99.7 million available under our revolving line of credit and $16.4 million of current assets less current liabilities (excluding
$51.3 of cash and cash equivalents and $57.3 million of deferred revenue).
Our principal uses of liquidity have been to fund our operations, working capital requirements, capital expenditures and
acquisitions and to service our debt obligations. We expect that working capital requirements, capital expenditures and
acquisitions will continue to be our principal needs for liquidity over the near term. In addition, we have made several
acquisitions in which a portion of the cash purchase price is payable at various times through 2014. We expect to fund these
obligations from cash provided by operating activities or, in some cases, the issuance of shares of our common stock at our
election.
We believe that our existing cash and cash equivalents, working capital (excluding deferred revenue and cash and cash
equivalents) and our cash flow from operations, will be sufficient to fund our operations and planned capital expenditures and
service our debt obligations for at least the next 12 months. Our future capital requirements will depend on many factors,
including our rate of revenue growth, the timing and size of acquisitions, the expansion of our sales and marketing activities,
the timing and extent of spending to support product development efforts, the timing of introductions of new solutions and
enhancements to existing solutions and the continuing market acceptance of our solutions. We may enter into acquisitions of
complementary businesses, applications or technologies, in the future, which could require us to seek additional equity or
debt financing. Additional funds may not be available on terms favorable to us, or at all. As of December 31, 2011, we have
Federal and State net operating loss carryforwards of $163.5 million and $5.3 million, respectively. These carryforwards may
be available to offset potential payments of future federal and state income tax liabilities and which, if unused, expire at
various dates through 2031 for both federal and state income tax purposes.
The following table sets forth cash flow data for the periods indicated therein:
Net cash provided by operating activities ..............................................................
Net cash used in investing activities ......................................................................
Net cash provided by financing activities ..............................................................
$
49,226
(109,228)
(6,694)
$ 27,690
(84,119)
170,028
$
24,758
(24,676)
97
Year Ended December 31,
2011
2010
2009
67
Net Cash Provided by Operating Activities
In 2011, we generated $49.2 million of net cash from operating activities representing an increase of $21.5 million, or
77.8%, compared to 2010. Our net cash from operating activities consisted of our net loss of $1.2 million and net non-cash
charges of $52.4 million partially offset by a $2.0 million use of operating cash flow resulting from changes in working
capital. Net non-cash charges to income primarily consisted of depreciation, amortization and stock-based compensation
expense. The $2.0 million use of operating cash flow resulting from the changes in working capital was primarily due to
higher accounts receivable balances, general timing differences in other current assets, accounts payable and other current
liabilities, offset by an increase in deferred revenue.
In 2010, we generated $27.7 million of net cash from operating activities representing an increase of $2.9 million, or
11.8%, compared to 2009. Our net cash from operating activities consisted of our net income of $0.1 million and net non-
cash charges of $28.1 million partially offset by a $0.5 million use of operating cash flow resulting from changes in working
capital. Net non-cash charges to income primarily consisted of depreciation, amortization and stock-based compensation
expense. The $0.5 million use of operating cash flow resulting from the changes in working capital was primarily due to
higher accounts receivable balances, general timing differences in other current assets, accounts payable and other current
liabilities, offset by an increase in deferred revenue.
In 2009, we generated $24.8 million of net cash from operating activities, which consisted of our net income of $28.4
million, offset by net non-cash income of $8.5 million, representing an increase of $16.8 million, or 211.0%, as compared to
2008. Net non-cash charges primarily consisted of a non-cash deferred tax benefit offset by depreciation, amortization and
stock-based compensation expense. The increase in our net cash from operating activities in 2009 was primarily due to our
net income, cash inflows from changes in working capital and greater collection of accounts receivable, which resulted in an
improvement in the number of days that sales were outstanding from 68 days in 2008 to 57 days in 2009. This decrease in
accounts receivable occurred despite an increase in revenues during the fourth quarter.
Net Cash Used in Investing Activities
In 2011, our investing activities used $109.2 million. Investing activities consisted of acquisition consideration of $89.2
million, net of cash acquired, for our 2011 acquisitions, acquisition-related payments of $2.0 million for commitments related
to prior years’ acquisitions and $18.0 million of capital expenditures and intangible asset purchases. The increase in cash
used in investing activities from 2010 relates to the consideration paid net of cash acquired for our 2011 acquisitions
combined with an increase in capital spending.
In 2010, our investing activities used $84.1 million. Investing activities consisted of acquisition consideration of $70.4
million net of cash acquired for our 2010 acquisitions, acquisition-related payments of $1.5 million for commitments related
to prior years’ acquisitions and $12.2 million of capital expenditures. The increase in cash used in investing activities from
2009 relates to the consideration paid net of cash acquired for our 2010 acquisitions combined with an increase in capital
spending.
In 2009, our investing activities used $24.7 million. Investing activities consisted of acquisition consideration of $11.6
million net of cash acquired for our 2009 acquisitions, acquisition-related payments of $3.6 million for commitments related
to prior years’ acquisitions and $9.5 million of capital expenditures. The decrease in cash used in investing activities from
2008 relates to a decrease in capital spending of $0.8 million combined with a decrease in acquisition-related payments of
$6.9 million.
Capital expenditures as of December 31, 2011, 2010 and 2009 were primarily related to investments in technology
infrastructure to support our growth initiatives.
Net Cash Provided by Financing Activities
Our financing activities used $6.7 million in 2011, representing a decrease of $176.7 million, as compared to the same
period of 2010. Cash used by financing activities during 2011 was primarily related to payments on our term loan of $8.1
million, payments on our revolving credit facility of $8.0 million, capital lease payments of $0.5 million, $0.8 million of
follow on offering costs and $0.2 million of excess tax benefit related to stock options. These increases were offset by $10.5
million in proceeds from the issuance of common stock.
68
Our financing activities provided $170.0 million in 2010, representing an increase of $169.9 million, as compared to the
same period of 2009. Cash provided by financing activities during 2010 was used to support our operations, as a funding
source for acquisitions and for capital expenditures related to the expansion of our technology infrastructure. Cash provided
by financing activities in 2010 was primarily related to net proceeds from our initial public offering on August 11, 2010, a
subsequent public stock offering on December 10, 2010 and $40.0 million of proceeds as a result of borrowing from our
credit facility. Related to our August 11, 2010 initial public offering, we sold 6,000,000 shares of common stock resulting in
proceeds, net of transaction expenses, of $57.5 million. Related to our December 3, 2010 public stock offering, we sold an
additional 4,000,000 shares of common stock in the offering resulting in net proceeds, net of transaction expenses, of $98.4
million. Cash proceeds were partially offset by payments to extinguish our secured subordinated promissory notes and our
preferred stockholder notes payable of $10.0 million and $6.5 million, respectively, in the third quarter of 2010, combined
with aggregate principal payments of $11.3 million for scheduled term debt maturities, capital lease obligations and preferred
stockholder notes payable. Additionally, during 2010, we paid $0.7 million of preferred stock dividends that had accrued on
our convertible preferred stock, which were offset by $2.4 million in proceeds from the issuance of common stock.
Our financing activities provided $0.1 million in 2009, representing a decrease of $25.8 million, or 99.6%, as compared
to 2008. Cash provided by financing activities in 2009 was primarily related to net proceeds from refinancing our credit
facility, offset by payments for scheduled term debt maturities, capital lease obligations and preferred stockholder notes
payable.
Cash provided by financing activities during 2011 was used to support our operations until we achieved positive
operating cash flow, as a funding source for acquisitions and for capital expenditures related to the expansion of our
technology infrastructure.
Contractual Obligations, Commitments and Contingencies
The following table summarizes, as of December 31, 2011, our minimum payments for long-term debt and other
obligations for the next five years and thereafter:
Secured revolving credit facility ........................ $
Interest payments on long-term debt
obligations(1) .................................................
Capital (finance) leases ......................................
Operating lease obligations ................................
Acquisition-related liabilities(2) ........................
$
_________________
Payments Due by Period
Total
Less Than
1 year
1-3 years
(in thousands)
3-5 years
More Than
5 years
50,312
$
— $
— $
50,312 $
6,080
65
27,913
14,311
98,681
$
1,520
65
6,593
12,728
20,906
$
3,040
—
11,678
1,583
16,301
$
1,520
—
9,642
—
61,474 $
—
—
—
—
—
—
(1) The amount of interest payments on long-term debt obligations represents current obligations using rates in effect as of
December 31, 2011.
(2) We have made several acquisitions in which a portion of the cash purchase price is payable at various times through
2014.
Long-Term Debt Obligations
In September 2009, we entered into a credit facility which provided for a $35.0 million term loan and a $10.0 million
revolving line of credit. A portion of the proceeds from the credit facility was used to repay the balance outstanding under our
prior credit facility. The term loan and revolving line of credit were collateralized by substantially all our personal property.
Prior to the June 2010 amendment discussed below, the term loan and revolving line of credit bore interest at rates of the
greater of 7.5%, a stated rate of 5.0% plus LIBOR (or, if greater, 2.5%), or a stated rate of 5.0% plus the bank’s prime rate
(or, if greater, 3.5%, the federal funds rate plus 0.5% or three month LIBOR plus 1.0%).
69
In February 2010, we entered into an amendment to the credit facility. Under the terms of the amendment, the original
term loan was increased by an additional $10.0 million. The proceeds from the amendment were primarily used to finance the
February 2010 acquisition of certain assets of Domin-8 Enterprise Solutions, Inc. The related interest rates and maturity
periods remained consistent with the terms of the credit facility. Until the June 2010 amendment discussed below, we made
principal payments on the term loan in quarterly installments of approximately $1.8 million.
In June 2010, we entered into a subsequent amendment to the credit facility. Under the terms of the June 2010
amendment, an additional $30.0 million in term loans was made available for borrowing until December 22, 2011. After the
June 2010 amendment and prior to the February 2011 amendment discussed below, the term loan and revolving line of credit
bore interest at a stated rate of 3.5% plus LIBOR, or a stated rate of 0.75% plus Wells Fargo’s prime rate (or, if greater, the
federal funds rate plus 0.5% or three month LIBOR plus 1.0%). After the June 2010 amendment and prior to the February
2011 amendment discussed below, interest on the term loans and the revolver was payable monthly, or for LIBOR loans, at
the end of the applicable 1-, 2-, or 3-month interest period. Under the terms of the June 2010 amendment and prior to the
December 2011 amendment and restatement discussed below, principal payments on the term loan were paid in quarterly
installments equal to 3.75% of the principal amount of term loans.
In September 2010, we entered into an amendment to the credit facility. Under the terms of the September 2010
amendment, the definition of “fixed charges” under the credit facility was amended to specifically exclude the cash dividend
and debt repayments made with the proceeds of our initial public offering.
In November 2010, we entered into an additional amendment to the credit facility and obtained consent to the Level
One acquisition. Under the terms of the November 2010 amendment, we increased the maximum allowable “senior leverage
ratio” under the credit facility and amended the definition of “permitted indebtedness” in the credit facility to permit amounts
payable in the future pursuant to the Level One acquisition. In addition, we borrowed $30.0 million on our delayed draw term
loans to facilitate the acquisition.
In February 2011, we entered into a subsequent amendment to the Credit Agreement. Under the terms of the February
2011 amendment, our revolving line of credit was increased from $10.0 million to $37.0 million. In addition, the interest
rates on the term loan and revolving line of credit were amended to provide for a rate that was dependent on our senior
leverage ratio and ranged from a stated rate of 2.75% to 3.25% plus LIBOR or, at our option, a stated rate of 0.0% to 0.5%
plus Wells Fargo’s prime rate (or, if greater, the federal funds rate plus 0.5% or three month LIBOR plus 1.0%). Prior to the
December 2011 amendment and restatement discussed below, principal payments on the term loan and outstanding revolver
balance remain consistent with the June 2010 amendment.
In December 2011, we entered into an Amended and Restated Credit Agreement (“Restated Agreement”) to amend the
original credit facility. The Restated Agreement provides for a secured revolving credit facility in an aggregate principal
amount of up to $150.0 million, subject to a borrowing formula, with a sublimit of $10.0 million for the issuance of letters of
credit on our behalf. The Restated Agreement converted our outstanding term loan under the original credit facility into
revolving loans. As of December 31, 2011, $50.3 million was outstanding under our revolving line of credit and $10.0
million was available for the issuance of letters of credit. Revolving loans accrue interest at a per annum rate equal to, at the
Company’s option, either LIBOR or Wells Fargo’s prime rate (or, if greater, the federal funds rate plus 0.50% or three month
LIBOR plus 1.00%), in each case plus a margin ranging from 2.50% to 3.00%, in the case of LIBOR loans, and 0.00% to
0.25% in the case of prime rate loans, based upon the Company’s senior leverage ratio. The interest is due and payable
monthly, in arrears, for loans bearing interest at the prime rate and at the end of the applicable 1-, 2-, or 3-month interest
period in the case of loans bearing interest as the adjusted LIBOR rate. Principal, together with all accrued and unpaid
interest, is due and payable on December 30, 2015. Advances under the credit facility may be voluntarily prepaid, and must
be prepaid with the proceeds of certain dispositions, extraordinary receipts and indebtedness and in full upon a change in
control.
All of our obligations under the loan facility are secured by substantially all of our property. All of our existing and
future domestic subsidiaries are required to guaranty our obligations under the credit facility, other than certain immaterial
subsidiaries and our payment processing subsidiary, RealPage Payment Processing Services, Inc. Our foreign subsidiaries
may, under certain circumstances, be required to guaranty our obligations under the credit facility. Such guarantees by
existing and future subsidiaries are and will be secured by substantially all of the property of such subsidiaries.
Our credit facility contains customary covenants which limit our and certain of our subsidiaries’ ability to, among other
things, incur additional indebtedness or guarantee indebtedness of others; create liens on our assets; enter into mergers or
consolidations; dispose of assets; prepay indebtedness or make changes to our governing documents and certain of our
agreements; pay dividends and make other distributions on our capital stock, and redeem and repurchase our capital stock;
70
make investments, including acquisitions; enter into transactions with affiliates; and make capital expenditures. Our credit
facility additionally contains customary affirmative covenants, including requirements to, among other things, take certain
actions in the event we form or acquire new subsidiaries; hold annual meetings with our lenders; provide copies of material
contracts and amendments to our lenders; locate our collateral only at specified locations; and use commercially reasonable
efforts to ensure that certain material contracts permits the assignment of the contract to our lenders; subject in each case to
customary exceptions and qualifications. We are also required to comply with a fixed charge coverage ratio, which is a ratio
of our EBITDA to our fixed charges as determined in accordance with the credit facility, of 1.25:1:00 for each 12-month
period ending at the end of a fiscal quarter, and a senior leverage ratio, which is a ratio of the outstanding revolver usage to
our EBITDA as determined in accordance with the credit facility, of 2.75:1.00 on the last day of each fiscal quarter.
In the event of a default on our credit facility, the obligations under the credit facility could be accelerated, the
applicable interest rate under the credit facility could be increased, and our subsidiaries that have guaranteed the credit
facility could be required to pay the obligations in full, and our lenders would be permitted to exercise remedies with respect
to all of the collateral that is securing the credit facility, including substantially all of our and our subsidiary guarantors’
assets. Any such default that is not cured or waived could have a material adverse effect on our liquidity and financial
condition.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements and we do not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which
have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes.
Recent Accounting Pronouncements
Goodwill
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2011-08, Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for Impairment, to allow entities to use a
qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is
concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required. We adopted this accounting standard in the fourth quarter
2011.
Comprehensive Income
In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220) — Presentation of Comprehensive
Income” (“ASU 2011-05”) effective for fiscal years, and interim periods within those years, beginning after December 15,
2011 with early adoption permitted. This accounting standard provides new disclosure guidance related to the presentation of
the Statement of Comprehensive Income. This guidance eliminates the current option to report other comprehensive income
and its components in the statement of changes in equity. We adopted this accounting standard in the fourth quarter 2011.
This adoption does not have any impact on our financial position or results of operations.
Business Combinations
In December 2010, the FASB issued ASU 2010-29 “Business Combinations (Topic 805)—Disclosure of
Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”) effective prospectively for material
(either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December
15, 2010. This accounting standard update clarifies SEC registrants presenting comparative financial statements should
disclose in their pro forma information revenue and earnings of the combined entity as though the current period business
combinations had occurred as of the beginning of the comparable prior annual reporting period only. The update also
expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring
pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and
earnings. These requirements changed our annual pro forma disclosures for acquisitions which have historically included the
impact on all comparable periods. ASU 2010-29 also changes our annual and quarterly pro forma disclosures to include a
description and the related amount of material adjustments made to pro forma results as seen in Note 3 of the Notes to the
Consolidated Financial Statements herein.
71
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue
financial instruments for trading purposes.
We had cash and cash equivalents of $51.3 million and $118.0 million at December 31, 2011 and 2010, respectively.
We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with
respect to investments, as our investments consist primarily of highly liquid investments purchased with original maturities of
three months or less. We do not use derivative financial instruments for speculative or trading purposes; however, we may
adopt specific hedging strategies in the future. Any declines in interest rates, however, will reduce future interest income.
We had total outstanding debt of $50.3 million and $66.0 at December 31, 2011 and 2010, respectively. The interest
rate on this debt is variable and adjusts periodically based on the three-month LIBOR rate. If the LIBOR rate changes by 1%,
our annual interest expense would change by approximately $0.5 million.
72
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm .............................................
Consolidated Balance Sheets ................................................................................................................................
Consolidated Statements of Operations ................................................................................................................
Consolidated Statements of Comprehensive (Loss) Income.................................................................................
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity ........
Consolidated Statements of Cash Flows ...............................................................................................................
Notes to Consolidated Financial Statements .........................................................................................................
Page
74
75
76
77
78
79
80
73
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
RealPage, Inc.
We have audited the accompanying consolidated balance sheets of RealPage, Inc. (the “Company”) as of December 31,
2011 and 2010, and the related consolidated statements of operations, comprehensive (loss) income, redeemable convertible
preferred stock and stockholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31,
2011. Our audits also included the financial statement schedule listed in the index under Item 15(c). These financial
statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of RealPage, Inc. at December 31, 2011 and 2010, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 2011 in conformity with United States generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects, the information set forth within.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2011, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 24, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Dallas, Texas
February 24, 2012
74
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
RealPage, Inc.
We have audited RealPage, Inc’s (the Company) internal control over financial reporting as of December 31, 2011,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based upon the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
As indicated in the accompanying, Report by management on internal control over financial reporting,
management’s assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include
the internal controls of SeniorLiving.net and Multifamily Technology Solutions, Inc., which are included in the December
31, 2011 consolidated financial statements of the Company and collectively constituted approximately 29 percent and 4
percent of total assets and revenues, respectively, as of December 31, 2011. Our audit of internal control over financial
reporting of the Company also did not include an evaluation of the internal control over financial reporting of Senior-
Living.com, Inc. and Multifamily Technology Solutions, Inc.
In our opinion, RealPage, Inc. maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of the Company as of December 31, 2011 and 2010, and the related consolidated
statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2011 of the Company and our report dated February 24, 2012 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Dallas, Texas
February 24, 2012
75
RealPage, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
December 31,
2011
2010
Assets
Current assets:
Cash and cash equivalents ....................................................................................................... $
Restricted cash .........................................................................................................................
Accounts receivable, less allowance for doubtful accounts of $979 and $1,370 at
51,273
19,098
$
118,010
15,346
December 31, 2011 and 2010, respectively.........................................................................
Deferred tax asset, net of valuation allowance ........................................................................
Other current assets .................................................................................................................
Total current assets ..............................................................................................................
Property, equipment, and software, net .......................................................................................
Goodwill ......................................................................................................................................
Identified intangible assets, net ....................................................................................................
Deferred tax asset, net of valuation allowance ............................................................................
Other assets ..................................................................................................................................
43,883
272
10,232
124,758
27,974
129,292
112,308
2,539
3,194
Total assets .......................................................................................................................... $ 400,065
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable .................................................................................................................... $
Accrued expenses and other current liabilities ........................................................................
Current portion of deferred revenue ........................................................................................
Current portion of long-term debt ...........................................................................................
Customer deposits held in restricted accounts.........................................................................
Total current liabilities ........................................................................................................
Deferred revenue .........................................................................................................................
Revolving credit facility ..............................................................................................................
Long-term debt, less current portion ............................................................................................
Other long-term liabilities ............................................................................................................
Total liabilities ....................................................................................................................
Commitments and contingencies (Note 8)
Preferred stock, $0.001 par value, 10,000,000 shares authorized and zero shares issued and
12,218
25,816
57,325
—
19,017
114,376
8,693
50,312
—
3,803
177,184
$
$
29,577
1,529
6,060
170,522
24,515
73,885
54,361
17,322
2,187
342,792
4,787
15,436
47,717
10,781
15,253
93,974
7,947
—
55,258
13,029
170,208
outstanding at December 31, 2011 and 2010, respectively .....................................................
—
—
Stockholders’ equity:
Common stock, $0.001 par value: 125,000,000 shares authorized, 73,115,779 and
68,703,366 shares issued and 72,701,571 and 68,490,277 shares outstanding at
December 31, 2011 and 2010, respectively.........................................................................
Additional paid-in capital ........................................................................................................
Treasury stock, at cost: 414,208 and 213,089 shares at December 31, 2011 and 2010,
73
316,964
respectively .........................................................................................................................
(3,138)
(90,961)
Accumulated deficit .................................................................................................................
(57)
Accumulated other comprehensive loss ..................................................................................
222,881
Total stockholders’ equity ...................................................................................................
Total liabilities and stockholders’ equity ............................................................................ $ 400,065
$
69
263,219
(958)
(89,730)
(16)
172,584
342,792
See accompanying notes
76
RealPage, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Year Ended December 31,
2010
2011
2009
Revenue:
On demand ....................................................................................................... $ 239,436
6,581
On premise .......................................................................................................
Professional and other ......................................................................................
11,962
257,979
Total revenue ................................................................................................
105,717
Cost of revenue(1) ................................................................................................
152,262
Gross profit .........................................................................................................
Operating expense:
Product development(1) ...................................................................................
Sales and marketing(1) .....................................................................................
General and administrative(1) ..........................................................................
Total operating expense ...............................................................................
Operating income ................................................................................................
Interest expense and other, net ..............................................................................
(Loss) income before income taxes ....................................................................
Income tax (benefit) expense ................................................................................
Net (loss) income ................................................................................................. $
Net (loss) income attributable to common stockholders
44,561
63,923
41,968
150,452
1,810
(3,251)
(1,441)
(210)
(1,231)
Basic ............................................................................................................. $
Diluted .......................................................................................................... $
(1,231)
(1,231)
Net (loss) income per share attributable to common stockholders
Basic ............................................................................................................. $
Diluted .......................................................................................................... $
(0.02)
(0.02)
Weighted average shares used in computing net (loss) income per share
attributable to common stockholders
$ 169,678
8,545
10,051
188,274
79,044
109,230
36,922
37,693
28,328
102,943
6,287
(5,501)
786
719
67
$
$
$
$
$
(2,877)
(2,877)
(0.07)
(0.07)
Basic .............................................................................................................
Diluted ..........................................................................................................
68,480
68,480
39,737
39,737
_________________
$ 128,377
3,860
8,665
140,902
58,513
82,389
27,446
27,804
20,210
75,460
6,929
(4,528)
2,401
(26,028)
28,429
10,611
10,611
0.44
0.42
23,934
25,511
$
$
$
$
$
(1)
Includes stock-based compensation expense as follows:
Year Ended December 31,
2010
2011
2009
Cost of revenue .....................................................................................................
Product development ............................................................................................
Sales and marketing ..............................................................................................
General and administrative ...................................................................................
$
1,655
4,594
12,017
4,352
$
633
2,568
2,493
1,646
$
367
1,175
498
765
See accompanying notes
77
RealPage, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(in thousands)
Net (loss) income .................................................................................................
Other comprehensive loss — foreign currency translation adjustment ............
Comprehensive (loss) income .............................................................................
$
$
(1,231) $
(41)
(1,272) $
67
(16)
51
$
$
Year Ended December 31,
2010
2011
2009
28,429
—
28,429
78
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B
RealPage, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net (loss) income .............................................................................................
Adjustments to reconcile net (loss) income to net cash provided by operating
$
(1,231)
$
67
$
28,429
Year Ended December 31,
2011
2010
2009
activities:
Depreciation and amortization ....................................................................
Deferred tax expense (benefit) ....................................................................
Stock-based compensation ..........................................................................
Excess tax benefit from stock options .........................................................
Loss on disposal of assets............................................................................
Impairment of assets ...................................................................................
Acquisition-related contingent consideration..............................................
Changes in assets and liabilities, net of assets acquired and liabilities
assumed in business combinations:
Accounts receivable ................................................................................
Customer deposits ...................................................................................
Other current assets .................................................................................
Other assets .............................................................................................
Accounts payable ....................................................................................
Accrued compensation, taxes and benefits .............................................
Deferred revenue .....................................................................................
Other current and long-term liabilities ....................................................
Net cash provided by operating activities ...............................................
Cash flows from investing activities:
Purchases of property, equipment and software ..............................................
Acquisition of businesses, net of cash acquired ..............................................
Intangible asset additions ................................................................................
Net cash used by investing activities ......................................................
Cash flows from financing activities:
Proceeds from public offerings, net of underwriting discount and offering
costs .............................................................................................................
Proceeds from notes payable ...........................................................................
Payments on notes payable ..............................................................................
Proceeds from revolving credit facility ...........................................................
Payments on revolving credit facility ..............................................................
Payments on capital lease obligations .............................................................
Preferred stock dividend ..................................................................................
Issuance of common stock ...............................................................................
Excess tax benefit from stock options .............................................................
Purchase of treasury stock ...............................................................................
Net cash (used) provided by financing activities ....................................
Net (decrease) increase in cash and cash equivalents .............................
Effect of exchange rate on cash ..............................................................
Cash and cash equivalents:
29,147
524
22,618
161
398
—
(410)
(11,101)
12
342
(930)
4,224
(1,186)
7,810
(1,152)
49,226
(16,147)
(91,231)
(1,850)
(109,228)
(775)
—
(58,086)
50,312
(7,953)
(525)
—
12,674
(161)
(2,180)
(6,694)
(66,696)
(41)
20,956
(85)
7,340
(161)
57
33
8
(2,068)
(334)
(3,162)
155
699
404
1,319
2,462
27,690
(12,178)
(71,941)
—
(84,119)
155,946
40,000
(26,257)
—
—
(1,539)
(666)
2,403
161
(20)
170,028
113,599
(16)
Beginning of period .........................................................................................
End of period ...................................................................................................
Supplemental cash flow information:
Cash paid for interest .......................................................................................
Cash paid for income taxes, net of refunds ......................................................
Non-cash financing activities:
Fixed assets acquired under capital leases .......................................................
Accrued dividends and accretion of preferred stock........................................
Conversion of preferred stock to common shares ...........................................
118,010
51,273
4,427
$ 118,010
2,498
1,024
$
$
5,268
193
$
$
$
—
—
—
$
$
3,030
$ 73,761
— $
$
$
$
$
$
$
$
$
14,769
(26,308)
2,805
—
127
119
—
2,407
255
559
(1,140)
645
(461)
1,094
1,458
24,758
(9,509)
(15,167)
—
(24,676)
—
35,000
(16,853)
(10,000)
—
(5,592)
(2,516)
547
—
(489)
97
179
—
4,248
4,427
3,833
228
2,462
5,678
3,005
See accompanying notes.
80
RealPage, Inc.
Notes To Consolidated Financial Statements
1. The Company
RealPage, Inc., a Delaware corporation, and its subsidiaries, (the “Company” or “we” or “us”) is a provider of property
management solutions that enable owners and managers of single-family and a wide variety of multi-family rental property
types to manage their marketing, pricing, screening, leasing, accounting, purchasing and other property operations. Our on
demand software solutions are delivered through an integrated software platform that provides a single point of access and a
shared repository of prospect, resident and property data. By integrating and streamlining a wide range of complex processes
and interactions among the rental housing ecosystem of owners, managers, prospects, residents and service providers, our
platform optimizes the property management process and improves the experience for all of these constituents. Our solutions
enable property owners and managers to optimize revenues and reduce operating costs through higher occupancy, improved
pricing methodologies, new sources of revenue from ancillary services, improved collections and more integrated and
centralized processes.
Initial Public Offering
On August 11, 2010, our registration statement on Form S-1 (File No 333-166397) relating to our initial public offering
was declared effective by the Securities and Exchange Commission (“SEC”). We sold 6,000,000 shares of common stock in
our initial public offering. Our common stock began trading on August 12, 2010 on the NASDAQ Global Select Stock
Market under the symbol “RP,” and our initial public offering closed on August 17, 2010. Upon closing of our initial public
offering, all outstanding shares of our preferred stock, including a portion of accrued but unpaid dividends on our outstanding
shares of Series A, Series A1 and Series B convertible preferred stock, were converted into 29,567,952 shares of common
stock.
On December 6, 2010, our registration statement on Form S-1 (File No 333-170667) relating to a public stock offering
was declared effective by the SEC. We sold an additional 4,000,000 shares of common stock in the offering. The offering
closed on December 10, 2010.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated balance sheets as of December 31, 2011 and 2010 and the accompanying consolidated
statements of operations and cash flows for each of the three years ended December 31, 2011 represent our financial position,
results of operations and cash flows as of and for the periods then ended. The consolidated financial statements include the
accounts of RealPage, Inc. and our wholly-owned subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
Segment and Geographic Information
Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a
company-wide basis. As a result, we determined that the Company has a single reporting segment and operating unit
structure.
Principally, all of our revenues for the years ended December 31, 2011, 2010 and 2009 were in North America.
Net long-lived assets held were $26.4 million and $24.0 million in North America, and $1.6 million and $0.5 million in
our international subsidiaries at December 31, 2011 and 2010, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
(“GAAP”) requires our management to make certain estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Significant estimates include the allowance for doubtful
accounts; the useful lives of intangible assets and the recoverability or impairment of tangible and intangible asset values;
81
purchase accounting allocations and related reserves; revenue and deferred revenue; stock-based compensation; and our
effective income tax rate and the recoverability of deferred tax assets, which are based upon our expectations of future
taxable income and allowable deductions. Actual results could differ from these estimates.
Cash Equivalents
We consider all highly liquid investments with a maturity date, when purchased, of three months or less to be cash
equivalents.
Concentrations of Credit Risk
Our cash accounts are maintained at various financial institutions and may, from time to time, exceed federally insured
limits. The Company has not experienced any losses in such accounts.
Concentrations of credit risk with respect to accounts receivable result from substantially all of our customers being in
the multi-family rental housing market. Our customers, however, are dispersed across different geographic areas. We do not
require collateral from customers. We maintain an allowance for losses based upon the expected collectability of accounts
receivable. Accounts receivable are written off upon determination of non-collectability following established Company
policies based on the aging from the accounts receivable invoice date.
No single customer accounted for 5% or more of our revenue or accounts receivable for the years ended December 31,
2011, 2010 or 2009.
Fair Value of Financial Instruments
Financial assets and liabilities with carrying amounts approximating fair value include cash and cash equivalents,
restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities. The carrying amount
of these financial assets and liabilities approximates fair value because of their short maturities. The carrying amount of our
debt and other long-term liabilities approximates their fair value. The fair value of debt was based upon our management’s
best estimate of interest rates that would be available for similar debt obligations as of December 31, 2011 and 2010 and was
consistent with the interest rates we received in connection with the refinancing of our debt obligations in December 2011.
Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value pursuant to a fair value hierarchy based on
inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable
inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from
independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions.
The fair value hierarchy consists of the following three levels:
Level 1 —
Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 —
Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and
market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 —
Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are
unobservable.
Accounts Receivable
For several of our solutions, we invoice customers prior to the period in which service is provided. Accounts receivable
represent trade receivables from customers when we have invoiced for software solutions and/or services and we have not yet
received payment. We present accounts receivable net of an allowance for doubtful accounts. We maintain an allowance for
doubtful accounts for estimated losses resulting from the inability of customers to make required payments, or the customer
cancelling prior to the service being rendered. In doing so, we consider the current financial condition of the customer, the
specific details of the customer account, the age of the outstanding balance, the current economic environment and historical
credit trends. As a result, a portion of our allowance is for services not yet rendered and, therefore, is charged as an offset to
deferred revenue, which does not have an effect on the statement of operations. Any change in the assumptions used in
82
analyzing a specific account receivable might result in an additional allowance for doubtful accounts being recognized in the
period in which the change occurs. For certain transactions, we have met the requirements to recognize income in advance of
physically invoicing the customer. In these instances, we record an asset for the amount that will be due from the customer
upon invoicing.
Property, Equipment and Software
Property, equipment and software are recorded at cost less accumulated depreciation and amortization, which are
computed using the straight-line method over the following estimated useful lives:
Leasehold improvements .........................................................................................................................................
Data processing and communications equipment ....................................................................................................
Furniture, fixtures and other equipment ...................................................................................................................
Software ...................................................................................................................................................................
1-10 years
1-10 years
1-5 years
1-4 years
Software includes purchased software and internally developed software. Leasehold improvements are depreciated over
the shorter of the lease term or the estimated useful lives of the assets.
Business Combinations
When we acquire businesses, we allocate the total consideration paid to the fair value of the tangible assets, liabilities,
and identifiable intangible assets acquired. Any residual purchase consideration is recorded as goodwill. The allocation of the
purchase price requires our management to make significant estimates in determining the fair values of assets acquired and
liabilities assumed, in particular with respect to identified intangible assets. These estimates are based on the application of
valuation models using historical experience and information obtained from the management of the acquired companies.
These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the
appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset. These
estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which
may affect the accuracy or validity of these estimates. In accordance with new accounting guidance, beginning in 2009, we
began including the fair value of contingent consideration to be paid within the total consideration allocated to the fair value
of the assets acquired and liabilities assumed. This requires us to make estimates regarding the fair value of the amounts to be
paid. Additionally, we expense acquisition-related costs as incurred rather than including as a component of purchase price.
Impairment of Long-Lived Assets
We perform an impairment review of long-lived assets held and used whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment
review include, but are not limited to, significant under-performance relative to projected future operating results, significant
changes in the manner of our use of the acquired assets or our overall business and/or product strategies. When we determine
that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of these
indicators, we determine the recoverability by comparing the carrying amount of the asset or asset group to net future
undiscounted cash flows that the asset or assets are expected to generate. We would then recognize an impairment charge
equal to the amount by which the carrying amount exceeds the fair market value of the asset or assets.
Goodwill and Other Intangible Assets with Indefinite Lives
We test goodwill and other intangible assets with indefinite lives for impairment separately on an annual basis in the
fourth quarter of each year. Additionally, we will test goodwill and other intangible assets with indefinite lives in the interim
if events and circumstances indicate that goodwill and other intangible assets with indefinite lives may be impaired. The
events and circumstances that we consider include significant under-performance relative to projected future operating results
and significant changes in our overall business and/or product strategies. We evaluate impairment of goodwill by first
performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is
less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment
test. Otherwise, the two-step goodwill impairment test is not required using a two-step process. The first step of the two-step
test involves a comparison of the fair value of a reporting unit with its carrying amount. If the carrying amount of the
reporting unit exceeds its fair value, the second step of the process involves a comparison of the fair value and carrying
amount of the goodwill of that reporting unit and determination of the impairment charge, if any. We evaluate other
intangible assets with indefinite lives by estimating the fair value of those assets based on estimated future earnings derived
from the assets using the income approach model. For those intangible assets with indefinite lives that have been determined
83
to be inseparable due to their interchangeable use, we have grouped into single units of accounting for purposes of testing for
impairment. If the carrying amount of the other intangible assets with indefinite lives exceeds the fair value, we would
recognize an impairment loss equal to the excess of carrying value over fair value. If an event occurs that would cause us to
revise our estimates and assumptions used in analyzing the value of our goodwill and other intangible assets with indefinite
lives, the revision could result in a non-cash impairment charge that could have a material impact on our financial results.
There was no impairment of goodwill or intangible assets with indefinite lives in 2011, 2010 or 2009.
Intangible Assets
Intangible assets consist of acquired developed product technologies, acquired customer relationships, vendor
relationships, non-competition agreements and tradenames. We record intangible assets at fair value and amortize those with
finite lives over the shorter of the contractual life or the estimated useful life. We estimate the useful lives of acquired
developed product technologies and customer relationships based on factors that include the planned use of each developed
product technology and the expected pattern of future cash flows to be derived from each developed product technology and
existing customer relationships. We include amortization of acquired developed product technologies in cost of revenue,
amortization of acquired customer relationships in sales and marketing expenses and amortization of vendor relationships and
non-competition agreements in general and administrative expenses in our consolidated statements of operations.
Income Taxes
Income taxes are provided based on the liability method, which results in income tax assets and liabilities arising from
temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method
requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which
the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance
unless it is more likely than not that the assets will be realized.
We may recognize a tax benefit from uncertain tax positions only if it is at least more likely than not that the tax
position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon settlement with the taxing authorities. Upon our adoption of the related
standard, there was no liability for uncertain tax positions due to the fact that there were no identified tax benefits that were
considered uncertain positions.
We establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized.
We evaluate the need for, and the adequacy of, valuation allowances based on the expected realization of our deferred tax
assets. The factors used to assess the likelihood of realization include historical earnings, our latest forecast of taxable income
and available tax planning strategies that could be implemented to realize the net deferred tax assets.
Revenue Recognition
We derive our revenue from three primary sources: our on demand software solutions; our on premise software
solutions; and professional and other services. We commence revenue recognition when all of the following conditions are
met:
•
•
•
•
there is persuasive evidence of an arrangement;
the solution and/or service has been provided to the customer;
the collection of the fees is probable; and
the amount of fees to be paid by the customer is fixed or determinable.
For multi-element arrangements that include multiple software solutions and/or services, we allocate arrangement
consideration to all deliverables that have stand-alone value based on their relative selling prices. In such circumstances, we
utilize the following hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows:
•
Vendor specific objective evidence (VSOE), if available. The price at which we sell the element in a separate
stand-alone transaction;
84
•
•
Third-party evidence of selling price (TPE), if VSOE of selling price is not available. Evidence from us or other
companies of the value of a largely interchangeable element in a transaction; and
Estimated selling price (ESP), if neither VSOE nor TPE of selling price is available. Our best estimate of the
stand-alone selling price of an element in a transaction.
Our process for determining ESP for deliverables without VSOE or TPE considers multiple factors that may vary
depending upon the unique facts and circumstances related to each deliverable. Key factors primarily considered in
developing ESP include prices charged by us for similar offerings when sold separately, pricing policies and approvals from
standard pricing and other business objectives.
From time to time, we sell on demand software solutions with professional services. In such cases, as each element has
stand alone value, we allocate arrangement consideration based on our estimated selling price of the on demand software
solution and VSOE of the selling price of the professional services.
Taxes collected from customers and remitted to governmental authorities are presented on a net basis.
On Demand Revenue
Our on demand revenue consists of license and subscription fees, transaction fees related to certain of our software-
enabled value-added services and commissions derived from us selling certain risk mitigation services.
License and subscription fees are comprised of a charge billed at the initial order date and monthly or annual
subscription fees for accessing our on demand software solutions. The license fee billed at the initial order date is recognized
as revenue on a straight-line basis over the longer of the contractual term or the period in which the customer is expected to
benefit, which we consider to be four years. Recognition starts once the product has been activated. Revenue from monthly
and annual subscription fees is recognized on a straight-line basis over the access period.
We recognize revenue from transaction fees derived from certain of our software-enabled value-added services as the
related services are performed.
As part of our risk mitigation services to the rental housing industry, we act as an insurance agent and derive
commission revenue from the sale of insurance products to individuals. The commissions are based upon a percentage of the
premium that the insurance company charges to the policyholder and are subject to forfeiture in instances where a
policyholder cancels prior to the end of the policy. If the policy is cancelled, our commissions are forfeited as a percent of the
unearned premium. As a result, we recognize the commissions related to these services ratably over the policy term as the
associated premiums are earned. Additionally, we earn a contingent commission based upon loss experience of the policies
sold by us. Our estimate of this contingent commission is recorded quarterly based on actual and estimated claims and losses.
On Premise Revenue
Revenue from our on premise software solutions is comprised of an annual term license, which includes maintenance
and support. Customers can renew their annual term license for additional one-year terms at renewal price levels. We
recognize the annual term license on a straight-line basis over the contract term.
In addition, we have arrangements that include perpetual licenses with maintenance and other services to be provided
over a fixed term. We allocate and defer revenue equivalent to the VSOE of fair value for the undelivered elements and
recognize the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue.
We have determined that we do not have VSOE of fair value for our customer support and professional services in these
specific arrangements. As a result, the elements within our multiple-element sales agreements do not qualify for treatment as
separate units of accounting. Accordingly, we account for fees received under multiple-element arrangements with customer
support or other professional services as a single unit of accounting and recognize the entire arrangement ratably over the
longer of the customer support period or the period during which professional services are rendered.
Professional and Other Revenue
Professional & other revenue is recognized as the services are rendered for time and material contracts. Training
revenues are recognized after the services are performed.
85
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from our
subscription service described above and is recognized as the revenue recognition criteria are met. For several of our
solutions, we invoice our customers in annual, monthly or quarterly installments in advance of the commencement of the
service period. Accordingly, the deferred revenue balance does not represent the total contract value of annual subscription
agreements.
Cost of Revenue
Cost of revenue consists primarily of salaries and related personnel expenses of our operations and support personnel,
including training and implementation services, expenses related to the operation of our data center, fees paid to third-party
providers, allocations of facilities overhead costs and depreciation, amortization of acquired technologies and amortization of
capitalized software.
Customer Acquisition Costs
The costs of obtaining new customers are expensed as incurred.
Share-Based Compensation
We record stock-based compensation expense for options granted to employees based on the estimated fair value for the
awards, using the Black-Scholes option pricing model on the date of grant. We recognize expense over the requisite service
period, which is generally the vesting period, on a straight-line basis.
At each stock option grant date, we utilize peer group data to calculate our expected volatility. Expected volatility is
based on historical volatility rates of publicly traded peers. Expected life is computed using the mid-point between the
vesting period and contractual life of the options granted. The risk-free rate is based on the treasury yield rate with a maturity
corresponding to the expected option life assumed at the grant date. Forfeiture rates are estimated using historical and
expected future trends.
Changes to the underlying assumptions may have a significant impact on the underlying value of the stock options,
which could have a material impact on our consolidated financial statements.
We have granted stock options at exercise prices believed to be equal to the fair market value of our common stock, as
of the grant date. Given the absence of any active market for our common stock before our initial public offering, the fair
market value of the common stock underlying stock options granted was determined by our compensation committee, with
input from our management, and considered contemporaneous third-party valuations.
The fair value of our time-based restricted stock awards is based on the closing price on the date of grant. We recognize
expense over the requisite service period, which is generally the vesting period, on a straight-line basis. For our performance-
based restricted stock awards, we recognized compensation expense over the requisite service period when it becomes
probable the performance condition will be achieved.
Capitalized Product Development Costs
We capitalize specific product development costs, including costs to develop software products or the software
components of our solutions to be marketed to external users, as well as software programs to be used solely to meet our
internal needs. The costs incurred in the preliminary stages of development related to research, project planning, training,
maintenance and general and administrative activities, and overhead costs are expensed as incurred. The costs of relatively
minor upgrades and enhancements to the software are also expensed as incurred. Once an application has reached the
development stage, internal and external costs incurred in the performance of application development stage activities,
including costs of materials, services and payroll and payroll-related costs for employees, are capitalized, if direct and
incremental, until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion
of all substantial testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the
expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Internal
use software is amortized on a straight-line basis over its estimated useful life, generally three years. We capitalized $2.3
million and $1.4 million of product development costs during the years ended December 31, 2011 and 2010, respectively,
86
and recognized amortization expense of $1.8 million, $1.3 million and $1.3 million during the years ended December 31,
2011, 2010 and 2009, respectively, included as a component of cost of revenue. Unamortized product development cost was
$3.7 million and $3.2 million at December 31, 2011 and 2010, respectively. Our management evaluates the useful lives of
these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact
the recoverability of these assets. There were no impairments to internal use software during the years ended December 31,
2011, 2010 or 2009.
Advertising Expenses
Advertising costs are expensed as incurred and totaled $11.0 million, $7.7 million and $5.9 million for the years ended
December 31, 2011, 2010 and 2009, respectively.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
December 31,
2011
2010
Accrued compensation, payroll taxes and benefits ........................................................................ $
Current portion of capital leases ....................................................................................................
Current portion of liabilities related to acquisitions.......................................................................
Other current liabilities ..................................................................................................................
Total accrued expenses and other current liabilities ...................................................................... $
Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
$
(in thousands)
6,330
65
12,728
6,693
25,816
$
6,946
525
2,058
5,907
15,436
December 31,
2011
2010
(in thousands)
Capital leases, less current portion .................................................................................................. $
Long-term liabilities related to acquisitions, less current portion...................................................
Other long-term liabilities ...............................................................................................................
Total other long-term liabilities ...................................................................................................... $
—
1,583
2,220
3,803
$
$
65
10,501
2,463
13,029
Recently Issued Accounting Standards
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2011-08, Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for Impairment, to allow entities to use a
qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is
concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required. We adopted this accounting standard in the fourth quarter
2011.
In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220) — Presentation of Comprehensive
Income” effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with early
adoption permitted. This accounting standard provides new disclosure guidance related to the presentation of the Statement
of Comprehensive Income. This guidance eliminates the current option to report other comprehensive income and its
components in the statement of changes in equity. We adopted this accounting standard in the fourth quarter 2011. This
adoption does not have any impact on our financial position or results of operations.
In December 2010, the FASB issued ASU 2010-29 “Business Combinations (Topic 805)—Disclosure of
Supplementary Pro Forma Information for Business Combinations” effective prospectively for material (either on an
individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010
with early adoption permitted. This accounting standard update clarifies SEC registrants presenting comparative financial
statements should disclose in their pro forma information revenue and earnings of the combined entity as though the current
period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The
87
update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma
revenue and earnings. We adopted ASU 2010-29 during the first quarter of 2011. These requirements changed our annual pro
forma disclosures for acquisitions which have historically included the impact on all comparable periods. ASU 2010-29 also
changed our annual and quarterly pro forma disclosures to include a description and the related amount of material
adjustments made to pro forma results as seen in Note 3 herein.
3. Acquisitions
2011 Acquisitions
In May 2011, we acquired substantially all of the assets of Compliance Depot, LLC (“Compliance Depot”) for
approximately $22.5 million which included a cash payment of $19.2 million at closing and three deferred payments of $1.1
million each payable six, twelve and eighteen months after the acquisition date. The acquisition of Compliance Depot
expands our ability to provide vendor risk management and compliance software solutions for the rental housing industry.
This acquisition was financed from proceeds from our initial public offering and cash flows from operations. Acquired
intangibles were recorded at fair value based on assumptions made by us. The acquired developed product technologies have
a useful life of three years amortized on a straight-line basis. Acquired customer relationships have a useful life of nine years
which will be amortized proportionately to the expected discounted cash flows derived from the asset. The tradenames
acquired have an indefinite useful life as we do not plan to cease using the tradenames in the marketplace. All direct
acquisition costs were less than $0.1 million and expensed as incurred. We included the results of operations of this
acquisition in our consolidated financial statements from the effective date of the acquisition. Goodwill and identified
intangibles associated with this acquisition are deductible for tax purposes.
In July 2011, we acquired Senior-Living.com, Inc., operating under the name SeniorLiving.net (“SLN”), pursuant to an
Agreement and Plan of Merger. The acquisition of SLN expands our lead generation capabilities into the senior living rental
housing market. The preliminary purchase price consisted of a cash payment of $4.0 million at closing, additional cash
payments of $0.5 million, half of which is due on each of the first and second anniversaries of the acquisition date, and an
estimated cash payment payable (acquisition-related contingent consideration) and up to 400,000 shares of our common
stock, in each case payable based on the achievement of certain revenue targets as defined in the purchase agreement. This
acquisition was financed from proceeds from cash flows from operations. At the acquisition date, we recorded a liability for
the estimated fair value of the acquisition-related contingent consideration of $0.3 million. In addition, we recorded the fair
value of the common shares of $8.4 million. These fair values were based on management’s estimate of the fair value of the
cash and the restricted common shares using a probability weighted discounted cash flow model on the achievement of
certain revenue targets. The cash payment has a maximum value of $0.5 million. The acquired developed product
technologies have a useful life of three years amortized on a straight-line basis. Acquired customer relationships have a useful
life of ten years which will be amortized proportionately to the expected discounted cash flows derived from the asset. The
tradenames acquired have an indefinite useful life as we do not plan to cease using the tradenames in the marketplace. All
direct acquisition costs were approximately $0.1 million and expensed as incurred. We included the results of operations of
this acquisition in our consolidated financial statements from the effective date of the acquisition. Goodwill and identified
intangibles associated with this acquisition are not deductible for tax purposes. The liability established for the acquisition-
related contingent consideration will continue to be re-evaluated and recorded at an estimated fair value based on the
probabilities, as determined by management, of achieving the related targets (a level 3 input). This evaluation will be
performed until all of the targets have been met or terms of the agreement expire. As of December 31, 2011, our liability for
the estimated cash payment was $0.3 million and the estimated fair value of the common stock was $8.4 million. During the
three and twelve months ended December 31, 2011, there were no costs due to changes in the estimated fair value of the cash
acquisition-related contingent consideration.
In August 2011, we acquired Multifamily Technology Solutions, Inc. (“MTS”), which owns the Internet listing service
for rental properties called MyNewPlace, pursuant to an Agreement and Plan of Merger. MTS continued as the surviving
corporation of the Merger and a wholly owned subsidiary of RealPage. The acquisition of MTS adds an Internet listing
service for rental properties and expands our syndication and organic lead generation capabilities. This acquisition was
financed from proceeds from our initial public offering, cash flows from operations and issuance of restricted common stock.
The preliminary purchase price consisted of a cash payment of $64.0 million, including amount placed in escrow, net of cash
acquired, 294,770 shares of RealPage restricted common stock and the assumption of MTS stock options exercisable for
349,693 shares of RealPage common stock. In addition, the purchase agreement included a put option on the restricted
common shares, in which, if the average market price of our common shares falls below an established threshold, we will pay
the difference between the average market price and the established threshold in cash. We established a liability of $1.2
million for the put option which is based on its estimated fair value at the acquisition date. We also recorded the fair value of
88
the restricted common shares and the assumed stock options of $6.3 million and $3.6 million, respectively. The fair value of
the restricted common shares was based on management’s estimate of the fair value of restricted common shares using a
probability weighted discounted cash flow model. The fair values of the assumed stock options and the put option was based
on the Black-Scholes option pricing model using inputs consistent with those used in the valuation of our stock options. The
acquired developed product technologies have a useful life of three years amortized on a straight-line basis. Acquired
customer relationships have a useful life of ten years which will be amortized proportionately to the expected discounted cash
flows derived from the asset. The tradenames acquired have an indefinite useful life as we do not plan to cease using the
tradenames in the marketplace. All direct acquisition costs were approximately $0.8 million and expensed as incurred. We
included the results of operations of this acquisition in our consolidated financial statements from the effective date of the
acquisition. Goodwill and identified intangibles associated with this acquisition are not deductible for tax purposes. The
liability established for the put option on the restricted common shares will continue to be re-evaluated and recorded at an
estimated fair value based on the changes in market prices of our common stock (a level 2 input). During the twelve months
ended December 31, 2011, we recognized a gain of $0.6 million due to changes in the estimated fair value of the put option
for restricted common shares. One of the minority shareholders of MTS is our customer. In connection with the distribution
of the purchase price, we paid this customer for their proportion of the purchase price. This transaction was at arm’s length
and is not related to the ongoing relationship with us.
The purchase agreement also included a portion of the cash and restricted common shares consideration to be placed
into escrow. As such, we placed $14.0 million in cash and 65,873 restricted common shares into an escrow account on the
date of acquisition. One half of these amounts will be released from escrow twelve months after the acquisition date. The
remaining amounts will be released eighteen months after the acquisition date.
We allocated the purchase price for MTS, SLN and Compliance Depot as follows:
MTS
SLN
(in thousands)
Compliance
Depot
Intangible assets:
Developed product technologies ......................................................... $
Customer relationships .......................................................................
Tradenames .........................................................................................
Goodwill .................................................................................................
Deferred revenue ....................................................................................
Net deferred taxes ...................................................................................
Net other assets .......................................................................................
Total purchase price, net of cash acquired .............................................. $
2,280
27,600
24,800
33,795
(164)
(15,574)
2,210
74,947
$
$
1,200
2,630
2,560
8,356
—
(1,347)
(224)
13,175
$
$
382
9,030
2,230
13,349
(2,380)
—
(110)
22,501
2010 Acquisitions
In November 2010, we acquired certain of the assets of Level One, LLC and L1 Technology, LLC (collectively “Level
One”), subsidiaries of IAS Holdings, LLC, for approximately $61.9 million, which included a cash payment of $53.9 million
at closing and a deferred payment of up to approximately $8.0 million, payable in cash or the issuance of our common stock
eighteen months after the acquisition date. The acquisition of Level One further expanded our ability to provide on demand
leasing center services. To facilitate the acquisition, we borrowed $30.0 million on our delayed draw term loans and utilized
$24.0 million of the net proceeds from our initial public offering. Acquired intangibles were recorded at fair value based on
assumptions made by us. The acquired developed product technologies have a useful life of three years amortized on a
straight-line basis. Acquired customer relationships have a useful life of nine years which will be amortized proportionately
to the expected discounted cash flows derived from the asset. The tradenames acquired have an indefinite useful life as we do
not plan to cease using the tradenames in the marketplace. All direct acquisition costs were approximately $0.3 million and
expensed as incurred. We included the results of operations of this acquisition in our consolidated financial statements from
the effective date of the acquisition. Goodwill and identified intangibles associated with this acquisition are deductible for tax
purposes.
In July 2010, we purchased 100% of the outstanding stock of eReal Estate Integration, Inc. (“eREI”) for approximately
$8.6 million, net of cash acquired, which included a cash payment of $3.8 million and an estimated cash payment payable
upon the achievement of certain revenue targets (acquisition-related contingent consideration) and the issuance of 499,999
restricted common shares, which vest as certain revenue targets are achieved as defined in the purchase agreement. At the
acquisition date, we recorded a liability for the estimated fair value of the acquisition-related contingent consideration of $0.8
million. In addition, we recorded the fair value of the restricted common shares of $3.3 million. These fair values were based
on management’s estimate of the fair value of the cash and the restricted common shares using a probability weighted
89
discounted cash flow model on the achievement of certain revenue targets. The cash payment and the related restricted
common shares have a maximum value of $1.8 million and $4.4 million, respectively. This acquisition was financed from
proceeds from our revolving line of credit and cash flows from operations. The acquisition of eREI improved our lead
management and lead syndication capabilities. Acquired intangibles were recorded at fair value based on assumptions made
by us. The acquired developed product technologies have a useful life of three years amortized on a straight-line basis.
Acquired customer relationships have a useful life of ten years which will be amortized proportionately to the expected
discounted cash flows derived from the asset. The tradenames acquired have an indefinite useful life as we do not plan to
cease using the tradenames in the marketplace. All direct acquisition costs were approximately $0.1 million and expensed as
incurred. We included the results of operations of this acquisition in our consolidated financial statements from the effective
date of the acquisition. Goodwill and identified intangibles associated with this transaction are not deductible for tax
purposes. The liability established for the acquisition-related contingent consideration will continue to be re-evaluated and
recorded at an estimated fair value based on the probabilities, as determined by management, of achieving the related targets
(a level 3 input). This evaluation will be performed until all of the targets have been met or terms of the agreement expire. As
of December 31, 2011, our liability for the estimated cash payment was $0.7 million. During the twelve months ended
December 31, 2011, we recognized a loss of $0.1 million due to changes in the estimated fair value of the cash acquisition-
related contingent consideration.
In February 2010, we acquired the assets of Domin-8 Enterprise Solutions, Inc. (“Domin-8”). The acquisition of these
assets improved our ability to serve our multi-family clients with mixed portfolios that include smaller, centrally-managed
apartment communities. The aggregate purchase price at closing was $12.9 million, net of cash acquired, which was paid
upon acquisition of the assets. We acquired deferred revenue as a contractual obligation, which was recorded at its assessed
fair value of $4.5 million. The fair value of the deferred revenue was determined based on estimated costs to support acquired
contracts plus a reasonable margin. The acquired intangibles were recorded at fair value based on assumptions made by us.
The customer relationships have useful lives of approximately nine years and are amortized in proportion to the estimated
cash flows derived from the relationship. Acquired developed product technologies have a useful life of three years and are
amortized straight-line over the estimated useful life. We have determined that the tradename has an indefinite life, as we
anticipate keeping the tradename for the foreseeable future given its recognition in the marketplace. Approximately $0.9
million of transaction costs related to this acquisition were expensed as incurred.We included the operating results of this
acquisition in our consolidated results of operations from the effective date of the acquisition. This acquisition was financed
from the proceeds from the amended credit agreement and cash flow from operations. This acquisition made immediately
available product offerings that complemented our existing products. Goodwill and identified intangibles associated with this
acquisition are deductible for tax purposes.
We allocated the purchase price for Level One, eREI and Domin-8 as follows:
Level One
eREI
(in thousands)
Domin-8
Intangible assets:
Developed product technologies ......................................................... $
Customer relationships .......................................................................
Tradenames .........................................................................................
Goodwill .................................................................................................
Deferred revenue ....................................................................................
Net deferred taxes ...................................................................................
Net other assets .......................................................................................
Total purchase price, net of cash acquired .............................................. $
692
18,300
3,740
36,897
(352)
—
2,573
61,850
$
$
5,279
498
844
4,664
—
(2,648)
(14)
8,623
$
$
3,678
6,418
1,278
4,896
(4,502)
—
1,155
12,923
Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for 2011 and 2010 as if the aforementioned
acquisitions had occurred at the beginning of each period presented. We prepared the pro forma financial information for the
combined entities for comparative purposes only, and it is not indicative of what actual results would have been if the
acquisitions had taken place at the beginning of the periods presented, or of future results.
90
Year Ended December 31,
2011
Pro Forma
(unaudited)
2010
Pro Forma
(unaudited)
Revenue:
On demand ......................................................................................................................
On premise ......................................................................................................................
Professional and other ....................................................................................................
Total revenue ..............................................................................................................
Net (loss) .............................................................................................................................
Net (loss) attributable to common stockholders:
Basic and diluted ............................................................................................................
$
$
252,931
6,581
11,962
271,474
(3,664)
203,699
9,295
10,079
223,073
(3,052)
(3,664)
(5,996)
Net loss per share attributable to common stockholders:
Basic ...............................................................................................................................
Diluted ............................................................................................................................
$
$
(0.05) $
(0.05) $
(0.15)
(0.15)
The acquisitions in 2011 and 2010 were financed with cash flows from operations and financing activities.
4. Property, Equipment and Software
Property, equipment and software consist of the following:
Leasehold improvements ....................................................................................................
Data processing and communications equipment ...............................................................
Furniture, fixtures and other equipment ..............................................................................
Software ..............................................................................................................................
Less: Accumulated depreciation and amortization .............................................................
Property, equipment and software, net ...............................................................................
December 31,
2011
2010
(in thousands)
9,924 $
38,926
9,680
31,266
89,796
(61,822)
27,974
$
8,772
31,712
8,012
26,617
75,113
(50,598)
24,515
$
$
Depreciation and amortization expense for property, equipment and software was $12.9 million, $11.5 million and
$10.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. This includes depreciation for assets
purchased through capital leases.
5. Goodwill and Other Intangible Assets
The change in the carrying amount of goodwill is as follows:
Balance at December 31, 2009 .....................................................................................................................
Goodwill acquired ........................................................................................................................................
Other .............................................................................................................................................................
Balance at December 31, 2010 .....................................................................................................................
Goodwill acquired ........................................................................................................................................
Other .............................................................................................................................................................
Balance at December 31, 2011 .....................................................................................................................
(in thousands)
27,366
$
46,457
62
73,885
55,500
(93)
129,292
$
Other intangible assets consisted of the following at December 31, 2011 and 2010:
Amortization
Period
Carrying
Amount
December 31, 2011
Accumulated
Amortization
Net
Carrying
Amount
December 31, 2010
Accumulated
Amortization
Net
(in thousands)
Finite-lived intangible assets
Developed technologies .................................
Customer relationships ...................................
Vendor relationships ......................................
Option to purchase building ...........................
Non-competition agreement ...........................
Total finite-lived intangible assets .....................
Indefinite-lived intangible assets Tradenames ...
Total intangible assets ........................................
3 years
1-10 years
7 years
1 year
4-5 years
$
$
$ 25,963
74,233
5,650
—
—
105,846
39,574
$ 145,420
91
(14,847)
(14,949)
(3,316)
—
—
(33,112)
—
(33,112)
$ 11,116
59,284
2,334
—
—
72,734
39,574
$ 112,308
$ 21,082
34,923
5,650
131
120
61,906
9,619
$ 71,525
$
$
(7,618)
(6,932)
(2,480)
(22)
(112)
(17,164)
—
(17,164)
$ 13,464
27,991
3,170
109
8
44,742
9,619
$ 54,361
There was no impairment of goodwill or trade names indicated during 2011 or 2010. In the fourth quarter 2011, we paid
$1.9 million to acquire domain names and other intangible assets. Amortization of finite-lived intangible assets was $16.2
million, $9.4 million and $4.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.
As of December 31, 2011, the following table sets forth the estimated amortization of intangible assets for the years
ending December 31:
2012 ..............................................................................................................................................................
2013 ..............................................................................................................................................................
2014 ..............................................................................................................................................................
2015 ..............................................................................................................................................................
2016 ..............................................................................................................................................................
$
(in thousands)
16,222
11,631
10,539
8,040
6,384
6. Debt
In September 2009, we entered into a Credit Agreement (“Credit Agreement”), which provided for a $35.0 million term
loan and a $10.0 million revolving line of credit. A portion of the proceeds from the Credit Agreement was used to repay the
balance outstanding under our prior credit agreement. Prior to the June 2010 amendment discussed below, the term loan and
revolving line of credit bore interest at rates of the greater of 7.5%, a stated rate of 5.0% plus LIBOR (or if greater, 2.5%) or a
stated rate of 5.0% plus the bank’s prime rate (or, if greater than 3.5%, the federal funds rate plus 0.5% or three month
LIBOR plus 1.0%). The term loan and revolving line of credit were collateralized by all of our personal property and subject
to financial covenants, including meeting certain financial measures.
In February 2010, we entered into an amendment to the Credit Agreement. Under the terms of the amendment, the
original term loan was increased by an additional $10.0 million. The related interest rates and maturity periods remained
consistent with the terms of the Credit Agreement. Prior to the June 2010 amendment discussed below, we made principal
payments on the term loan in quarterly installments of approximately $1.8 million.
In June 2010, we entered into a subsequent amendment to the Credit Agreement. Under the terms of the June 2010
amendment, an additional $30.0 million in delayed draw term loans was made available for borrowing until December 22,
2011. After the June 2010 amendment, the term loan and revolving line of credit bore interest at a stated rate of 3.5% plus
LIBOR, or a stated rate of 0.75% plus Wells Fargo’s prime rate (or, if greater, the federal funds rate plus 0.5% or three month
LIBOR plus 1.0%). After the June 2010 amendment and prior to the December 2011 amendment discussed below, principal
payments on the term loan were paid in quarterly installments equal to 3.75% of the principal amount of term loans. In June
and July 2010, we borrowed a total of $7.6 million from our revolving line of credit in order to partially facilitate an
acquisition. Using the proceeds from our initial public offering, we repaid the outstanding balance of the revolver loan.
In August 2010, the lenders under our Credit Agreement consented to our using proceeds from our initial public
offering to repay the Notes and the Stockholder Notes (each as defined below) and to pay cash dividends due upon
conversion of our redeemable convertible preferred stock.
In September 2010, we entered into an amendment to the Credit Agreement. Under the terms of the September 2010
amendment, the repayment of the Notes and Stockholder Notes and the payment of the cash dividends due upon conversion
of our redeemable convertible preferred stock were excluded from the definition of “fixed charges” under the Credit
Agreement.
In November 2010, we increased our term loan by an additional $30.0 million by exercising the delayed draw provision
established in June 2010. The related interest rates and maturity periods remained consistent with the previous amendments.
In February 2011, we entered into a subsequent amendment to the Credit Agreement. Under the terms of the February
2011 amendment, our revolving line of credit was increased from $10.0 million to $37.0 million. In addition, the interest
rates on the term loan and revolving line of credit were amended to provide for a rate that was dependent on our leverage
ratio and ranged from a stated rate of 2.75% to 3.25% plus LIBOR or, at our option, a stated rate of 0.0% to 0.5% plus Wells
Fargo’s prime rate (or, if greater, the federal funds rate plus 0.5% or three month LIBOR plus 1.0%). Prior to the December
2011 amendment discussed below, principal payments on the term loan and outstanding revolver balance remain consistent
with the June 2010 amendment.
92
In December 2011, we entered into an Amended and Restated Credit Agreement that (“Restated Agreement”) to amend
and restate the Credit Agreement. The Restated Agreement provides for a secured revolving credit facility in an aggregate
principal amount of up to $150.0 million, subject to a borrowing formula, with a sublimit of $10.0 million for the issuance of
letters of credit on our behalf. The Restated Agreement converted our outstanding term loan under the Credit Agreement into
revolving loans. As of December 31, 2011, $50.3 million was outstanding under our revolving line of credit and $10.0
million was available for the issuance of letters of credit. Revolving loans accrue interest at a per annum rate equal to, at the
Company’s option, either LIBOR or Wells Fargo’s prime rate (or, if greater, the federal funds rate plus 0.50% or three month
LIBOR plus 1.00%), in each case plus a margin ranging from 2.50% to 3.00%, in the case of LIBOR loans, and 0.00% to
0.25% in the case of prime rate loans, based upon the Company’s senior leverage ratio. The interest is due and payable
monthly, in arrears, for loans bearing interest at the prime rate and at the end of an the applicable 1-, 2-, or 3-month interest
period in the case of loans bearing interest as the adjusted LIBOR rate. Principal, together with all accrued and unpaid
interest, is due and payable on December 30, 2015.
Debt issuance costs incurred in connection with the Credit Agreement, Credit Agreement amendments and the Restated
Agreement are deferred and amortized over the remaining term of the arrangement. We have unamortized debt issuance costs
of $1.3 million and $1.8 million at December 31, 2011 and 2010, respectively. As of December 31, 2011, we were in
compliance with our debt covenants.
As of December 31, 2011, principal payments are due in the five years ending December 31 as follows:
Year ending December 31,
2012 ..........................................................................................................................................................
2013 ..........................................................................................................................................................
2014 ..........................................................................................................................................................
2015 ..........................................................................................................................................................
2016 ..........................................................................................................................................................
$
—
—
—
50,312
—
(in thousands)
7. Share-based Compensation
Our Amended and Restated 1998 Stock Incentive Plan (“Stock Incentive Plan”) and 2010 Equity Incentive Plan
provides for awards which may be granted in the form of incentive stock options, nonqualified stock options, restricted stock,
stock appreciation rights and performance units. Our board of directors periodically approves increases to the number of
shares of common stock reserved for issuance under our 2010 Equity Incentive Plan.
Stock Option Plan
Stock options generally vest ratably over four years following the date of grant and expire ten years from the date of the
grant. We also grant awards to our directors, generally in the form of stock options, in accordance with the Board of Directors
Policy (“Board Plan”). The options generally vest immediately and have a four-year term. Should a director leave the board,
we have the right to repurchase shares as if the options vested on a pro rata basis. In 2009, we began issuing options that vest
over four years with 75% vesting ratably over 15 quarters and the remaining 25% vesting on the 16th quarter. All outstanding
options were granted at exercise prices equal to or exceeding our estimate of the fair market value of our common stock at the
date of grant.
In connection with our acquisition of MTS, on August 24, 2011, we assumed 349,693 nonqualified and incentive stock
options granted from MTS’s 2005 Equity Incentive Plan (“MTS Plan”) for 96 employees. Assumed options were converted
to equivalent share-based awards of RealPage based on the ratio of our fair market value of stock to the fair market value of
MTS’s stock on the acquisition date. The number of shares and ratio of exercise price to market price were equitably adjusted
to preserve the intrinsic value of the award as of immediately prior to the acquisition. The conversion was accounted for as a
modification under the provisions of GAAP which did not result in an incremental increase in the fair value of the assumed
option awards. The majority of assumed options vest over a four-year period at a rate of 25% or 20% after one year and then
monthly on a straight-line basis thereafter while others vest ratably over a four-year period. Options granted generally are
exercisable up to 10 years. No further options will be granted under the MTS Plan.
93
The following table summarizes stock option transactions under our 2010 Equity Plan, Stock Incentive Plan, MTS Plan
and Board Plan:
Balance at December 31, 2008 ...................................................................
Granted ...................................................................................................
Exercised ................................................................................................
Forfeited/cancelled .................................................................................
Balance at December 31, 2009 ...................................................................
Granted ...................................................................................................
Exercised ................................................................................................
Forfeited/cancelled .................................................................................
Balance at December 31, 2010 ...................................................................
Granted ...................................................................................................
Assumed MTS Plan ................................................................................
Exercised ................................................................................................
Forfeited/cancelled .................................................................................
Expired ...................................................................................................
Balance, December 31, 2011 ......................................................................
Number of
Shares
6,234,563
2,284,000
(177,891)
(411,943)
7,928,729
2,460,600
(778,746)
(479,089)
9,131,494
1,477,250
349,693
(3,117,058)
(548,532)
(1,379)
7,291,468
Range of
Exercise
Prices
$ 2.00-7.00
6.00
2.00-6.00
2.00-7.00
2.00-7.00
7.50-27.18
2.00-9.00
2.00-27.18
2.00-27.18
19.73-29.50
0.91-23.29
0.91-27.18
4.28-29.50
4.28-6.00
$ 0.91-29.50
Weighted
Average
Exercise
Price
$
$
3.67
6.00
3.05
4.18
4.33
10.68
3.09
6.21
6.05
24.09
4.39
4.07
12.94
5.26
9.95
The weighted average grant-date fair value of options granted during the years ended December 31, 2011, 2010 and
2009 was $11.87, $5.19 and $2.63, respectively. The aggregate intrinsic value of stock options exercised in the years ended
December 31, 2011, 2010 and 2009 was $68.6 million, $22.9 million and $0.4 million, respectively. The aggregate intrinsic
value of outstanding stock options was $112.9 million and $227.2 million as of December 31, 2011 and 2010, respectively.
The aggregate intrinsic value of options exercisable was $68.3 million and $133.4 million as of December 31, 2011 and
2010, respectively.
The following table summarizes outstanding stock options that are vested and expected to vest, non-vested and stock
options that are currently exercisable.
December 31, 2011
December 31, 2010
Fully Vested
and
Expected to
Vest
7,274,630
Non-Vested
3,809,498
Exercisable
3,481,970
Fully Vested
and
Expected to
Vest
8,744,854
Non-Vested
4,211,068
Exercisable
4,920,426
Number of shares outstanding ..................
Weighted average remaining contractual
life ........................................................
Weighted average price per share ............. $
7.20
9.94
$
8.52
13.82
$
5.82
5.71
$
7.05
5.90
$
8.80
8.65
$
5.70
3.82
As of December 31, 2011 and 2010, the total future compensation cost related to non-vested stock options to be
recognized in the consolidated statement of operations was $24.3 million and $12.7 million, respectively, with a weighted
average period over which these awards are expected to be recognized of 2.8 years and 2.1 years, respectively.
The total number of stock options that vested during the year ended December 31, 2011 and 2010 was 1,416,375 and
569,618, respectively. The fair value of these options was $35.8 million and $17.6 million, respectively.
Stock Option Valuation Assumptions
We have utilized the Black-Scholes option pricing model as the appropriate model for determining the fair value of
stock-based awards. The awards granted were valued using the following assumptions:
Risk-free interest rates ..............................................................................................................................................
Expected option life (in years) ..................................................................................................................................
Dividend yield ..........................................................................................................................................................
Expected volatility ....................................................................................................................................................
0.9-5.1%
5-6
0%
49-60%
Risk-free interest rate. This is the average U.S. Treasury rate (having a term that most closely approximates the
expected life of the option) for the period in which the option was granted.
94
Expected life of the options. This is the period of time that the options granted are expected to remain outstanding.
Dividend yield. We have never declared or paid dividends on our common stock and do not anticipate paying dividends
in the foreseeable future.
Expected volatility. Volatility is a measure of the amount by which a financial variable such as a share price has
fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. We arrived at a volatility rate
after considering historical and expected volatility rates of publicly traded peers.
Restricted Stock Awards
Restricted stock is an award that entitles the holder to receive shares of our common stock as the award vests. The fair
value of each restricted stock award is based on the closing common stock price on the date of grant. Our time-based
restricted stock awards generally vest ratably over four years following the date of grant and expire ten years from the date of
the grant. Compensation expense for time-based restricted stock awards is recognized over the vesting period on a straight-
line basis. We have also granted certain employees performance-based restricted stock awards. These shares vest dependent
upon attainment of various levels of performance that equal or exceed targeted levels and generally vest in their entirety two
years from the date of grant. Compensation expense for performance-based restricted stock awards is recognized based on the
probability of achievement of the performance condition. As of December 31, 2011, there was $22.4 million and $5.7 million
of unrecognized compensation cost related to time-based restricted stock awards and performance-based restricted stock
awards, respectively. That cost is expected to be recognized over a weighted-average period of 3.2 years and 0.8 years,
respectively.
A summary of time-based restricted share awards’ activity is presented in the table below.
Balance at December 31, 2009 ....................................................................................................
Granted ........................................................................................................................................
Vested ..........................................................................................................................................
Forfeited/cancelled ......................................................................................................................
Balance at December 31, 2010 ....................................................................................................
Granted ........................................................................................................................................
Vested ..........................................................................................................................................
Forfeited/cancelled ......................................................................................................................
Balance at December 31, 2011 ....................................................................................................
Number of
Shares
100,000
274,132
(51,332)
(1,100)
321,700
1,063,085
(197,990)
(186,519)
1,000,276
Weighted
Average
Price
$
$
5.04
19.21
5.10
27.18
20.54
23.92
21.48
21.60
24.54
A summary of performance-based restricted share awards’ activity is presented in the table below.
Balance at December 31, 2009 ....................................................................................................
Granted ........................................................................................................................................
Vested ..........................................................................................................................................
Forfeited/cancelled ......................................................................................................................
Balance at December 31, 2010 ....................................................................................................
Granted ........................................................................................................................................
Vested ..........................................................................................................................................
Forfeited/cancelled ......................................................................................................................
Balance at December 31, 2011 ....................................................................................................
Number of
Shares
Weighted
Average
Price
161,173
564,000
—
(3,146)
722,027
20,646
(209,086)
—
533,587
$
$
5.04
27.18
—
5.04
22.33
25.77
19.97
—
23.39
The aggregate intrinsic value of time-based and performance-based restricted stock awards was $25.2 million and $13.5
million as of December 31, 2011, respectively.
95
Stock Purchase Warrants
We issued a five-year warrant to purchase 25,000 and 12,500 shares of common stock at $2.00 per share in connection
with 2004 and 2005 amendments to our prior credit facility. In May 2009, the warrant to purchase 25,000 shares was
automatically net exercised for 15,808 shares of common stock. In March 2010, the warrant to purchase 12,500 shares was
automatically net exercised for 8,790 shares of common stock. As of December 31, 2011, we have no warrants outstanding.
8. Commitments and Contingencies
Lease Commitments
We lease office space and equipment under capital and operating leases that expire at various times through 2016. We
recognize lease expense for these leases on a straight-line basis over the lease terms.
The assets under capital lease are as follows:
December 31,
2011
2010
Data processing and communications equipment .......................................................................... $
Software .........................................................................................................................................
Less: Accumulated depreciation and amortization ........................................................................
Assets under capital lease, net ....................................................................................................... $
$
(in thousands)
5,655
5,903
11,558
(11,298)
260
$
5,666
5,903
11,569
(9,610)
1,959
Aggregate annual rental commitments at December 31, 2011, under operating leases with initial or remaining non-
cancelable lease terms greater than one year and capital leases are as follows:
Capital Leases
Operating
Leases
(in thousands)
2012 ......................................................................................................................................
2013 ......................................................................................................................................
2014 ......................................................................................................................................
2015 ......................................................................................................................................
2016 ......................................................................................................................................
Thereafter ..............................................................................................................................
Total Minimum lease payments ............................................................................................
Less amount representing average interest at 4.5% ..............................................................
Less current portion ..............................................................................................................
Long-term portion .................................................................................................................
$
$
$
$
$
6,593
6,149
5,529
5,444
4,198
—
27,913
65
—
—
—
—
—
65
—
65
(65)
—
Rent expense was $7.4 million, $6.5 million and $5.1 million for the years ended December 31, 2011, 2010 and 2009,
respectively.
Guarantor Arrangements
We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the
officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer or
director’s lifetime. The maximum potential amount of future payments we could be required to make under these
indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits our exposure
and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the
estimated fair value of these indemnification agreements is minimal. Accordingly, we had no liabilities recorded for these
agreements as of December 31, 2011 or 2010.
In the ordinary course of our business, we enter into standard indemnification provisions in our agreements with our
customers. Pursuant to these provisions, we indemnify our customers for losses suffered or incurred in connection with third-
party claims that our products infringed upon any U.S. patent, copyright, trademark or other intellectual property right.
Where applicable, we generally limit such infringement indemnities to those claims directed solely to our products and not in
96
combination with other software or products. With respect to our products, we also generally reserve the right to resolve such
claims by designing a non-infringing alternative, by obtaining a license on reasonable terms, or by terminating our
relationship with the customer and refunding the customer’s fees.
The potential amount of future payments to defend lawsuits or settle indemnified claims under these indemnification
provisions is unlimited in certain agreements; however, we believe the estimated fair value of these indemnity provisions is
minimal, and, accordingly, we had no liabilities recorded for these agreements as of December 31, 2011 or 2010.
Litigation
From time to time, in the normal course of our business, we are a party to litigation matters and claims. Litigation can
be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to
predict and our view of these matters may change in the future as the litigation and events related thereto unfold. We expense
legal fees as incurred. Insurance recoveries associated with legal costs incurred are recorded when they are deemed probable
of recovery. We record a provision for contingent losses when it is both probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. An unfavorable outcome in any legal matter, if material, could have an
adverse effect on our operations, financial position, liquidity and results of operations.
On January 24, 2011, Yardi Systems, Inc. (“Yardi”) filed a lawsuit in the U.S. District Court for the Central District of
California against RealPage, Inc. and DC Consulting, Inc. and filed a First Amended Complaint on August 12, 2011. On
March 28, 2011, we filed an answer and counterclaims, on May 18, 2011, we filed amended counterclaims, on September 2,
2011, we filed Second Amended Counterclaims and on September 12, 2011, we filed an answer to Yardi’s First Amended
Complaint. Yardi has also filed a pending motion to dismiss several of our counterclaims which we have opposed. On
February 13, 2012, the Court denied Yardi’s motion with respect to all claims except for a portion of one of our claims for
intentional interference with contract, as to which dismissal was granted. Accordingly, RealPage will move forward with its
claims against Yardi. We currently expect trial in this case to be scheduled for late September 2012. We intend to defend this
case and pursue our counterclaims vigorously. It is not possible to predict the outcome of this case, and as such, we have not
recorded a contingent liability as we do not believe an unfavorable outcome is probable or reasonably estimated as of
December 31, 2011.
We are involved in other litigation matters not listed above but we do not consider the matters to be material either
individually or in the aggregate at this time. Our view of the matters not listed may change in the future as the litigation and
events related thereto unfold.
9. Funds Held for Others
In connection with our payment processing services, we collect tenant funds and subsequently remit these tenant funds
to our customers after varying holding periods. These funds are settled through our Originating Depository Financial
Institution (“ODFI”) custodial account at a major bank. The ODFI custodial account balances were $18.1 million and $14.5
million at December 31, 2011 and 2010, respectively. The ODFI custodial account balances are included in our consolidated
balance sheets as restricted cash. The corresponding liability for these custodial balances is reflected as customer deposits. In
connection with the timing of our payment processing services, we are exposed to credit risk in the event of nonperformance
by other parties, such as returned checks. We utilize credit analysis and other controls to manage the credit risk exposure. We
have not experienced any credit losses to date. Any expected losses are included in our accounts receivable allowances on our
consolidated balance sheet.
In January 2007, we established a wholly owned subsidiary, RealPage Payment Processing Services, Inc. (“RPPS”), a
bankruptcy-remote, special-purpose entity, and transferred the ODFI custodial accounts and all ACH transaction processing
responsibilities to RPPS. We provide processing and administrative services to RPPS through a services agreement.
The obligations of RPPS under the ODFI custodial account agreement are guaranteed by us.
In connection with our resident insurance products, we collect premiums from policy holders and subsequently remit the
premium, net of our commission, to the underwriter. We maintain separate accounts for these transactions. We had $0.9
million and $0.9 million in restricted cash for the periods ended December 31, 2011 and 2010, respectively, and $0.8 million
and $0.8 million in customer deposits related to these insurance products for periods ended December 31, 2011 and 2010,
respectively.
97
10. Net Income (Loss) Per Share
Net income (loss) per share is presented in conformity with the two-class method required for participating securities.
Holders of Series A Preferred, Series A1 Preferred, Series B Preferred and Series C Preferred are each entitled to receive 8%
per annum cumulative dividends, payable prior and in preference to any dividends on any other shares of our capital stock. In
the event a dividend is paid on common stock, holders of Series A Preferred, Series A1 Preferred, Series B Preferred, Series
C Preferred and non-vested restricted stock are entitled to a proportionate share of any such dividend as if they were holders
of common shares (on an as-if converted basis). Holders of Series A Preferred, Series A1 Preferred, Series B Preferred,
Series C Preferred and non-vested restricted stock do not share in loss of the Company.
Under the two-class method, basic net income per share attributable to common stockholders is computed by dividing
the net income attributable to common stockholders by the weighted average number of common shares outstanding during
the period. Net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as
net income less current period Series A Preferred, Series A1 Preferred, Series B Preferred and Series C Preferred cumulative
dividends, between the holders of common stock and Series A Preferred, Series A1 Preferred, Series B Preferred and Series
C Preferred. Diluted net income per share attributable to common stockholders is computed by using the weighted average
number of common shares outstanding, including potential dilutive shares of common stock assuming the dilutive effect of
outstanding stock options using the treasury stock method. Weighted average shares from common share equivalents in the
amount of 3,180,852 shares and 2,683,398 shares were excluded from the dilutive shares outstanding because their effect was
anti-dilutive for the years ended December 31, 2011 and 2010, respectively.
The following table presents the calculation of basic and diluted net income per share attributable to common
stockholders:
Numerator:
Year Ended December 31,
2011
2009
2010
(in thousands, except per share amounts)
Net (loss) income ........................................................................
8% cumulative dividends on participating preferred stock.........
Undistributed earnings allocated to participating preferred and
restricted stock .......................................................................
Net (loss) income attributable to common stockholders —
$
(1,231)
—
$
67
(2,944)
$
28,429
(5,521)
—
—
(12,297)
basic and diluted ....................................................................
$
(1,231)
$
(2,877)
$
10,611
Denominator:
Basic:
Weighted average common shares used in computing basic net
(loss) income per share ..........................................................
Diluted:
Weighted average common shares used in computing basic net
(loss) income per share ..........................................................
Add weighted average effect of dilutive securities:
Stock options..........................................................................
Stock warrants ............................................................................
Weighted average common shares used in computing diluted
net (loss) income per share ....................................................
Net (loss) income per common share:
68,480
39,737
23,934
68,480
39,737
—
—
—
—
68,480
39,737
Basic ...............................................................................................
Diluted ............................................................................................
$
$
(0.02)
(0.02)
$
$
(0.07)
(0.07)
$
$
11. Income Taxes
The domestic and foreign components of income (loss) before provision for income taxes were as follows:
Domestic ............................................................................................. $
Foreign ................................................................................................
Total .................................................................................................... $
98
2011
Year Ended December 31,
2010
(in thousands)
119
$
667
786
$
$
$
(926)
(515)
(1,441)
23,934
1,531
46
25,511
0.44
0.42
2009
2,111
290
2,401
Our (benefit) provision for income taxes consisted of the following components:
Current:
Federal ...........................................................................................
State ...............................................................................................
Foreign ...........................................................................................
Total current taxes .............................................................................
Deferred:
Federal ...........................................................................................
State ...............................................................................................
Foreign ...........................................................................................
Total deferred taxes ...........................................................................
Total income tax provision (benefit) .............................................
$
$
2011
Year Ended December 31,
2010
(in thousands)
2009
—
225
70
295
299
(626)
(178)
(505)
(210)
$
$
—
384
405
789
263
(15)
(318)
(70)
719
$
$
—
231
49
280
(25,147)
(1,161)
—
(26,308)
(26,028)
The reconciliation of our income tax (benefit) expense computed at the U.S. federal statutory tax rate to the actual
income tax (benefit) expense is as follows:
Expense derived by applying the Federal income tax rate to (loss)
income before taxes .......................................................................... $
State income tax, net of federal benefit ..............................................
Foreign income tax .............................................................................
Change in valuation allowance ...........................................................
Benefits of assets not previously recognized ......................................
Nondeductible expenses .....................................................................
Stock Based Compensation ................................................................
Tax credits ..........................................................................................
Changes in tax rates ............................................................................
Other ...................................................................................................
$
2011
Year Ended December 31,
2010
(in thousands)
2009
(504)
146
215
(660)
(97)
674
137
53
(138)
(36)
(210)
$
$
275
202
(78)
2,343
(2,343)
337
—
(87)
33
37
719
$
$
837
152
(50)
(27,036)
—
166
—
—
—
(97)
(26,028)
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of the assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our
deferred tax assets and liabilities are as follows:
Deferred tax assets:
Stock-based compensation............................................................................................. $
Reserves and accrued liabilities.....................................................................................
Net operating loss carryforwards ...................................................................................
Total gross deferred tax assets ...........................................................................................
Deferred tax asset valuation allowance ..............................................................................
Deferred tax assets .............................................................................................................
Deferred tax liabilities
Property, equipment, and software ................................................................................
Other ..............................................................................................................................
Intangible assets .............................................................................................................
Total deferred tax liabilities ...............................................................................................
Net deferred tax assets/(liabilities) ..................................................................................... $
December 31,
2011
2010
(in thousands)
6,945
6,579
31,604
45,128
(9,229)
35,899
(5,448)
(1,664)
(25,976)
(33,088)
2,811
$
$
3,625
7,337
24,680
35,642
(6,870)
28,772
(3,476)
(824)
(5,621)
(9,921)
18,851
The net increase in valuation allowance for the years ended December 31, 2011 was $2.4 million, $3.2 million relating
to our acquisition of MTS and SLN and $(0.8) million relating to various state net operating losses for which the benefit we
have determined is more likely than not to be realized.
99
Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more
likely than not that the deferred tax assets are realizable, adjusts the valuation allowance accordingly. The determination of
the level of valuation allowance at December 31, 2011 is based on an estimated forecast of future taxable income which
includes many judgments and assumptions. Accordingly, it is at least reasonably possible that future changes in one or more
assumptions may lead to a change in judgment regarding the level of valuation allowance required in future periods.
The acquisition of the stock of SLN and MTS resulted in an additional net deferred tax liability of $16.5 million. This
net liability includes a deferred tax liability of $24.1 million related to intangibles that are not amortizable for tax purposes, a
deferred tax asset, net of valuation allowance, of $6.4 million related to net operating loss carryforwards and other
miscellaneous deferred tax assets of $1.2 million.
Our largest deferred tax assets are our federal and state net operating loss carryforwards of $163.5 million and $5.3
million respectively. The federal net operating losses will begin to expire in 2020 and the state net operating losses will begin
to expire in 2012. Of the total net operating loss carryforwards, approximately $78.9 million is attributable to deductions
originating from the exercise of non-qualified employee stock options, the benefit of which will be credited to paid-in capital
and deferred tax asset when realized.
In connection with our acquisition of MTS on August 24, 2011, we assumed incentive stock options (“ISOs”) granted
from the MTS Plan. No tax benefit is recognized for stock-based compensation attributable to ISOs until there is a
disqualifying disposition, if any, for income tax purposes. A portion of our stock-based compensation is attributable to ISO
shares; therefore, our effective tax rate is subject to fluctuation.
A cumulative change in ownership among material shareholders, as defined in Section 382 of the Internal Revenue
Code, during a three-year period may limit utilization of the federal net operating loss carryforwards. Based on available
information, we believe we are not currently subject the Section 382 limitation; however certain net operating losses
generated by subsidiaries prior to their acquisition by the Company are subject to the Section 382 limitation. The limitation
on these pre-acquisition net operating loss carryforwards will fully expire in 2020.
Our current state tax expense of $0.2 million is comprised of current tax expense in jurisdictions where the utilization of
current net operating losses is temporarily suspended and where tax is considered an income tax for financial reporting
purposes but is assessed on adjusted gross revenue rather than adjusted net income.
Our subsidiary in Hyderabad, India benefited from a tax holiday granted under the Software Technology Parks of India
program. This holiday began upon commencement of business operations in 2008 and expired on March 31, 2011. During
this holiday period we were required to pay a minimum alternative tax which is available to reduce our post holiday tax
liability.
Our subsidiary in Manila, Philippines currently benefits from an income tax holiday incentives in the Philippines
pursuant to the registrations with the Philippine Economic Zone Authority, or PEZA. Under such PEZA registrations, the
income tax holiday of our PEZA-registered project in the Philippines expires in 2015. The expiration of this tax holiday will
increase our effective income tax rate.
No provision has been made for U.S federal and state income taxes on the undistributed earnings of approximately $0.5
million relating to our foreign subsidiaries as such earnings are expected to be reinvested and are considered permanent in
duration. If these earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of the
subsidiaries were sold or transferred, we would likely be subject to additional U.S. income taxes, net of the impact of any
available foreign tax credits. It is not practicable to estimate the additional income taxes related to permanently reinvested
earnings in the subsidiaries.
Uncertain Tax Positions
At December 31, 2011 and 2010, we had no unrecognized tax benefits. Our policy is to include interest and penalties
related to unrecognized tax benefits in income tax expense, and as of December 31, 2011 and 2010, there were no accrued
interest and penalties.
100
We file consolidated and separate tax returns in the U.S. federal jurisdiction, numerous state jurisdictions and two
foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2008 and are no
longer subject to state and local income tax examinations by tax authorities for years before 2007. However, net operating
losses from all years continue to be subject to examinations and adjustments for at least three years following the year in
which the attributes are used. We are not currently under audit for federal, state or any foreign jurisdictions.
12. Employee Benefit Plans
In 1998, our board of directors approved a defined contribution plan that provides retirement benefits under the
provisions of Selection 401(k) of the Internal Revenue Code. Our 401(k) Plan (“Plan”) covers substantially all employees
who meet a minimum service requirement. Under the Plan, we can elect to make voluntary contributions. Contributions of
$0.7 million, $0.5 million and $0.4 million were made by us for the years ended December 31, 2011, 2010 and 2009,
respectively.
13. Subsequent Event
In January 2012, we acquired substantially all of the operating assets of Vigilan, Incorporated (“Vigilan”). A provider of
assisted living software-as-a-service, Vigilan products allow assisted living communities to monitor and schedule detailed
care, manage labor costs, provide accurate billing as well as compliance tools through its comprehensive compliance module.
We plan to integrate Vigilan with our existing senior living software solutions. We acquired Vigilan for a purchase price of
$5.0 million consisting of a cash payment of $4.0 million and two additional cash payments of up to $0.5 million each due 12
months and 24 months after the acquisition date. Due to the timing of this acquisition, the purchase price allocation was not
complete as of the date of this filing due to the pending completion of the valuation of intangible assets.
14. Selected Quarterly Financial Data (unaudited)
December 31,
2011
September 30,
2011
June 30,
2011
Three Months Ended,
March 31,
2011
December 31,
2010
(in thousands)
September 30,
2010
June 30,
2010
March 31,
2010
Revenue:
On demand .......................................... $
On premise ..........................................
Professional and other ........................
Total revenue .........................................
Gross profit ............................................
Net income (loss)................................... $
66,695 $
1,536
2,910
71,141
43,502
241 $
62,765
1,772
3,118
67,655
40,070
(1,106) $
$ 57,039
1,628
2,968
61,635
35,825
282
$
$
52,937 $
1,645
2,966
57,548
32,865
(648) $
$
49,285
2,126
2,648
54,059
31,610
(186) $
43,097 $ 40,089
2,424
2,127
2,296
2,804
44,809
48,028
26,275
27,825
164
292 $
$ 37,207
1,868
2,303
41,378
23,520
(203)
$
Net income (loss) attributable to
common stockholders
Basic and Diluted .................................. $
Net income (loss) per share attributable
to common stockholders
Basic and Diluted ................................ $
241 $
(1,106) $
282
$
(648) $
(186) $
(327) $
(807) $
(1,353)
0.00 $
(0.02)
$
0.00
$
(0.01) $
0.00
$
(0.01) $
(0.03) $
(0.05)
101
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), we carried out an evaluation, with the participation of our management, and under the supervision of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined
under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in ensuring that information required to be disclosed in the reports that we file or submit under the
Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s
assessment of the effectiveness of our disclosure controls and procedures is expressed at the level of reasonable assurance
because management recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives.
Management’s Report on Internal Control over Financial Reporting and Attestation Report of the Registered
Accounting Firm
Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles in the United States. Management is responsible for establishing and maintaining adequate internal
control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the degree or compliance with the policies or
procedures may deteriorate.
Under supervision and with participation of management, including the Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2011.
In conducting this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on our evaluation using criteria set by
COSO, management concluded internal control over financial reporting was effective as of December 31, 2011.
We acquired SeniorLiving.net in July 2011 and Multifamily Technology Solutions, Inc. in August 2011. Management
has excluded the operations of these businesses from its assessment of, and conclusion on, the effectiveness of our internal
control over financial reporting as of December 31, 2011. These businesses represent 29.3% and 4.0% of our total assets and
revenues, respectively, as of December 31, 2011. We plan to fully integrate the operations of these businesses into our
assessment of the effectiveness of internal control over financial reporting in 2012.
The effectiveness of internal control over financial reporting as of December 31, 2011 has been audited by Ernst &
Young LLP, our independent registered public accounting firm, which is stated in their report included in Part II Item 8 of
this Annual Report.
Changes in Internal Controls
There were no significant changes in our internal control over financial reporting during the twelve months ended
December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Inherent Limitations of Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
102
system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a
simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the control. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of
changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2011 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2011 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2011 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011.
Item 13. Certain Relationships, and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2011 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2011 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011.
103
Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statements
PART IV
(1) The financial statements filed as part of this report are listed on the index to financial statements.
(2) Any financial statement schedules required to be filed as part of this report are set forth in section (c) below.
(b) Exhibits
See Exhibit Index at the end of this report, which is incorporated by reference.
(c) Financial Statement Schedules
The following schedule is filed as part of this annual report:
All other schedules have been omitted because the information required to be presented in them is not applicable or is
shown in the financial statements or related notes.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
REALPAGE, INC.
December 31, 2011
(in thousands)
Allowance for Doubtful Accounts
Description
Year ended December 31:
2009 .......................................................................................
2010 .......................................................................................
2011 .......................................................................................
____________
(1) Uncollectible accounts written off, net of recoveries.
Balance at
Beginning
of Year
$
$
$
2,895
2,222
1,370
Additions
Charged to
Costs and
Expenses
616
1,944
1,677
Deduction(1)
Balance at
End of
Year
(1,289)
(2,796)
(2,068)
2,222
1,370
979
104
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Carrollton, State of Texas, on this 24 day of February 2012.
SIGNATURES
REALPAGE, INC.
By: /s/ Stephen T. Winn
Stephen T. Winn
Chairman of the Board, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed
by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
/s/ Stephen T. Winn
Stephen T. Winn
/s/ Timothy J. Barker
Timothy J. Barker
/s/ Alfred R. Berkeley, III
Alfred R. Berkeley, III
/s/ Richard M. Berkeley
Richard M. Berkeley
/s/ Peter Gyenes
Peter Gyenes
/s/ Jeffrey T. Leeds
Jeffrey T. Leeds
/s/ Jason A. Wright
Jason A. Wright
/s/ Scott S. Ingraham
Scott S. Ingraham
Title
Date
Chairman of the Board, Chief Executive
Officer, and Director (Principal
February 24, 2012
Executive Officer)
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
Director
Director
Director
Director
Director
Director
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
105
Exhibit
Number Exhibit Description
EXHIBIT INDEX
Incorporated by Reference
Date
Form
Number Herewith
Filed
2.1
Agreement and Plan of Merger among the Registrant,
Multifamily Technology Solutions, Inc., RP Newco IV, Inc.
and Shareholder Representative Services LLC as
Representative, dated August 22, 2011
8-K
08/23/2011
2.1
3.1
Amended and Restated Certificate of Incorporation of the
Registrant
S-1
07/26/2010
3.2
Amended and Restated Bylaws of the Registrant
Form of Common Stock certificate of the Registrant
Shareholders’ Agreement among the Registrant and certain
stockholders, dated December 1, 1998, as amended July 16,
1999 and November 3, 2000
Second Amended and Restated Registration Rights
Agreement among the Registrant and certain stockholders,
dated February 22, 2008
S-1
S-1
S-1
07/26/2010
07/26/2010
04/29/2010
3.2
3.4
4.1
4.2
S-1
04/29/2010
4.3
4.1
4.2
4.3
4.4
4.5
10.3
10.4
10.5
Registration Rights Agreement among the Registrant and
certain stockholders, dated November 3, 2010
10-Q
11/05/2010
Registration Rights Agreement among the Registrant and
certain stockholders, dated August 24, 2011
10-Q
11/08/2011
4.4
4.5
10.1
Form of Indemnification Agreement entered into between
the Registrant and each of its directors and officers
S-1
04/29/2010
10.1
10.2
Amended and Restated 1998 Stock Incentive Plan+
Amended and Restated 1998 Stock Incentive Plan (June
2010) +
Forms of Stock Option Agreements and Restricted Share
Agreements approved for use under the 1998 Stock
Incentive Plan+
S-1
S-1
04/29/2010
10.2
06/07/2010
10.2G
S-1
04/29/2010
Forms of Stock Option Agreements and Restricted Share
Agreements approved for use under the 1998 Stock
Incentive Plan+
S-1
06/07/2010
10.6
Form of Director’s Nonqualified Stock Option Agreement+ S-1
04/29/2010
10.3
10.7
Form of Notice of Grant of Restricted Shares (Outside
Directors) +
S-1
06/07/2010
10.49
10.8
2010 Equity Incentive Plan+
10.9
Amendment No. 1 to 2010 Equity Incentive Plan+
10.10 Forms of Stock Option Award Agreements and Restricted
Stock Award Agreements approved for use under the 2010
Equity Incentive Plan+
S-1
8-K
S-8
07/26/2010
02/24/2011
08/17/2010
10.4
10.3
4.6,
4.7,
4.8,
4.9
10.11 Stand-Alone Stock Option Agreement between the
S-1
04/29/2010
10.7
Registrant and Peter Gyenes, dated February 25, 2010+
106
10.2A,
10.2B,
10.2C,
10.2D
10.2E,
10.2F,
10.2H
Exhibit
Number Exhibit Description
Incorporated by Reference
Date
Form
Number Herewith
Filed
10.12 Non-Qualified Stock Option Agreement (Second Series)
S-1
04/29/2010
10.8
under the Amended and Restated 1998 Stock Incentive Plan
between the Registrant and Timothy J. Barker dated
October 27, 2005+
10.13 Non-Qualified Stock Option Agreement (Second Series)
S-1
04/29/2010
10.9
under the Amended and Restated 1998 Stock Incentive Plan
between the Registrant and Timothy J. Barker dated
February 26, 2009+
10.14 Notice of Stock Option Grant under the Amended and
S-1
04/29/2010
10.10
Restated 1998 Stock Incentive Plan between the Registrant
and Timothy J. Barker dated February 25, 2010+
10.15 Notice of Stock Option Grant under the Amended and
S-1
06/07/2010
10.52
Restated 1998 Stock Incentive Plan between the Registrant
and Margot Lebenberg, dated May 12, 2010+
10.16 Form of 2010 Management Incentive Plan (as revised May
S-1
06/07/2010
10.6A
2010) +
10.17 Form of 2011 Management Incentive Plan+
10.18 Employment Agreement between the Registrant and
Stephen T. Winn, dated December 30, 2003+
8-K
S-1
02/24/2011
10.2
04/29/2010
10.11
10.19 Employment Agreement between the Registrant and
Timothy J. Barker, dated October 31, 2005+
S-1
04/29/2010
10.12
10.20 Amendment to Employment Agreement between the
S-1
04/29/2010
10.13
Registrant and Timothy J. Barker, dated January 1, 2010+
10.21 Employment Agreement between the Registrant and Ashley
S-1
04/29/2010
10.16
Chaffin Glover, dated March 3, 2005+
10.22 Employment Agreement between Multifamily Internet
S-1
04/29/2010
10.17
Ventures, LLC and Dirk D. Wakeham, dated April 12, 2007
and amended April 12, 2007+
10.23 Employment Agreement between the Registrant and Jason
S-1
06/07/2010
10.50
Lindwall, dated January 8, 2008+
10.24 Employment Agreement between the Registrant and
Margot Lebenberg, dated May 12, 2010+
S-1
06/07/2010
10.51
10.25 Employment Release Agreement between the Registrant
S-1
07/02/2010
10.53
and William Van Valkenberg, dated June 8, 2010+
10.26 Employment Agreement between the Registrant and Kurt
10-Q
11/08/2011
10.2
Twining, dated July 5, 2011
10.27 Employment Agreement 409A Addendum between the
10-Q
11/05/2010
10.5
Registrant and Stephen T. Winn, dated November 5, 2010+
10.28 Employment Agreement 409A Addendum between the
10-Q
11/05/2010
10.6
Registrant and Timothy J. Barker, dated November 5,
2010+
10.29 Employment Agreement 409A Addendum between the
10-Q
11/05/2010
10.7
Registrant and Ashley Chaffin Glover, dated November 5,
2010+
107
Exhibit
Number Exhibit Description
Incorporated by Reference
Date
Form
Number Herewith
Filed
10.30 Employment Agreement 409A Addendum between the
10-Q
11/05/2010
10.8
Registrant and Dirk Wakeham, dated November 5, 2010+
10.31 Employment Agreement 409A Addendum between the
Registrant and Margot Lebenberg, dated November 5,
2010+
10-Q
11/05/2010
10.9
10.32 Employment Agreement 409A Addendum between the
10-Q
11/05/2010
10.10
Registrant and Jason Lindwall, dated November 5, 2010+
10.33 Credit Agreement among the Registrant, Wells Fargo
S-1
04/29/2010
10.18
Foothill, LLC and Comerica Bank dated, September 3,
2009
10.34 Security Agreement among the Registrant, OpsTechnology,
S-1
04/29/2010
10.19
Inc., Multifamily Internet Ventures, LLC, Starfire Media,
Inc., RealPage India Holdings, Inc. and Wells Fargo
Foothill, LLC, dated September 3, 2009
10.35 General Continuing Guaranty among OpsTechnology, Inc.,
S-1
04/29/2010
10.20
Multifamily Internet Ventures, LLC, Starfire Media, Inc.,
RealPage India Holdings, Inc. and Wells Fargo Foothill,
LLC, dated September 3, 2009
10.36 Waiver and First Amendment to Credit Agreement among
S-1
04/29/2010
10.21
the Registrant, Wells Fargo Foothill, LLC and Comerica
Bank, dated September 16, 2009
10.37 General Continuing Guaranty between A.L. Wizard, Inc.
S-1
04/29/2010
10.22
and Wells Fargo Foothill, LLC, dated September 25, 2009
10.38 Waiver and Second Amendment to Credit Agreement
among the Registrant, Wells Fargo Foothill, LLC and
Comerica bank, dated October 15, 2009
S-1
04/29/2010
10.23
10.39 General Continuing Guarantee between Propertyware, Inc.
S-1
04/29/2010
10.24
and Wells Fargo Foothill, LLC, dated November 6, 2009
10.40 Supplement No. 2 to Security Agreement between
S-1
04/29/2010
10.25
Propertyware, Inc. and Wells Fargo Foothill, LLC, dated
November 6, 2009
10.41 Consent and Third Amendment to Credit Agreement among
S-1
04/29/2010
10.26
the Registrant, Wells Fargo Foothill, LLC, and Comerica
Bank dated December 23, 2009
10.42 Waiver, Consent and Fourth Amendment to Credit
S-1
04/29/2010
10.27
Agreement among the Registrant, Wells Fargo Capital
Finance, LLC (f/k/a Wells Fargo Foothill, LLC) and
Comerica Bank dated February 10, 2010
10.43 General Security Agreement between 43642 Yukon, Inc.
and Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo
Foothill, LLC), dated February 10, 2010
10.44 Guarantee between 43642 Yukon, Inc. and Wells Fargo
Capital Finance, LLC (f/k/a Wells Fargo Foothill, LLC),
dated February 10, 2010
S-1
04/29/2010
10.28
S-1
04/29/2010
10.29
10.45 Share Pledge between the Registrant and Wells Fargo
S-1
04/29/2010
10.30
Capital Finance, LLC (f/k/a Wells Fargo Foothill, LLC),
dated February 10, 2010
108
Exhibit
Number Exhibit Description
Incorporated by Reference
Date
Form
Number Herewith
Filed
10.46 Consent and Fifth Amendment to Credit Agreement among
S-1
07/02/2010
10.54
the Registrant, Wells Fargo Capital Finance, LLC (f/k/a
Wells Fargo Foothill, LLC) and Comerica Bank, dated June
22, 2010
10.47 Sixth Amendment to Credit Agreement among the
S-1
07/28/2010
10.55
Registrant, Wells Fargo Capital Finance, LLC (f/k/a Wells
Fargo Foothill, LLC) and Comerica Bank, dated June 22,
2010
10.48 Seventh Amendment to Credit Agreement among the
10-Q
11/05/2010
10.3
Registrant, Wells Fargo Capital Finance, LLC (f/k/a Wells
Fargo Foothill, LLC) and Comerica Bank, dated September
30, 2010
10.49 Consent and Eighth Amendment to Credit Agreement
10-Q
11/05/2010
10.4
among the Registrant, Wells Fargo Capital Finance, LLC
(f/k/a Wells Fargo Foothill, LLC) and Comerica Bank,
dated November 3, 2010
10.50 Ninth Amendment to Credit Agreement among RealPage,
Inc., Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo
Foothill, LLC) and Comerica Bank, dated February 23,
2011.
8-K
02/24/2011
10.1
10.51 Consent and Tenth Amendment to Credit Agreement
10-Q
11/08/2011
10.1
among the Registrant, Wells Fargo Capital Finance, LLC
(f/k/a Wells Fargo Foothill, LLC) and Comerica Bank,
dated August 24, 2011
10.52 Form of Unsecured Subordinated Promissory Note (April
S-1
04/29/2010
10.37
2010)
10.53 Schedule of Holders of Unsecured Subordinated
S-1
04/29/2010
10.37A
Promissory Notes (April 2010)
10.54 Lease Agreement between the Registrant and CB Parkway
S-1
04/29/2010
10.39
Business Center V, Ltd., dated July 23, 1999
10.55 First Amendment to Lease Agreement between the
S-1
04/29/2010
10.40
Registrant and CB Parkway Business Center V, Ltd., dated
November 29, 1999
10.56 Second Amendment to Lease Agreement between the
S-1
04/29/2010
10.41
Registrant and CB Parkway Business Center V, Ltd., dated
January 30, 2006
10.57 Third Amendment to Lease Agreement between the
S-1
04/29/2010
10.42
Registrant and CB Parkway Business Center V, Ltd., dated
August 28, 2006
10.58 Fourth Amendment to Lease Agreement between the
S-1
04/29/2010
10.43
Registrant and ARI-Commercial Properties, Inc., dated
November 2007
10.59 Fifth Amendment to Lease Agreement between the
S-1
04/29/2010
10.44
Registrant and ARI-Commercial Properties, Inc., dated
February 4, 2009
10.60 Sixth Amendment to Lease Agreement between the
S-1
04/29/2010
10.45
Registrant and ARI-Commercial Properties, Inc., dated
March 30, 2009
109
Exhibit
Number Exhibit Description
Incorporated by Reference
Date
Form
Number Herewith
Filed
10.61 Lease Agreement between the Registrant and Savoy IBP 8,
S-1
04/29/2010
10.46
Ltd., dated August 28, 2006
10.62 First Amendment to Lease Agreement among the
S-1
04/29/2010
10.47
Registrant, ARI-International Business Park, LLC, ARI —
IBP 1, LLC, ARI — IBP 2, LLC, ARI — IBP 3, LLC, ARI
— IBP 4, LLC, ARI — IBP 5, LLC, ARI — IBP 6, LLC,
ARI — IBP 7, LLC, ARI — IBP 8, LLC, ARI — IBP 9,
LLC, ARI — IBP 11, LLC and ARI — IBP 12, LLC, dated
December 28, 2009
10.63 Master Services Agreement between the Registrant and
DataBank Holdings Ltd., dated May 31, 2007†
S-1
07/02/2010
10.48
10.64 Amended and Restated Credit Agreement among the
8-K
12/27/11
10.1
Registrant, Wells Fargo Capital Finance, LLC, Comerica
Bank and the other lenders party thereto, dated December
22, 2011
10.65 First Amendment to Security Agreement among the
Registrant and Wells Fargo Capital Finance, LLC and the
other grantors party thereto, dated December 22, 2011*
21.1
Subsidiaries of the Registrant*
23.1
31.1
31.2
32.1
32.2
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm*
Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 153-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002*
Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 153-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002*
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002*
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002*
101.INS
Instance††
101.SCH Taxonomy Extension Schema††
101.CAL Taxonomy Extension Calculation††
101.LAB Taxonomy Extension Labels††
110
X
X
X
X
X
X
X
X
X
X
X
Exhibit
Number Exhibit Description
101.PRE Taxonomy Extension Presentation††
101.DEF Taxonomy Extension Definition††
____________
Incorporated by Reference
Date
Form
Number Herewith
Filed
X
X
+
*
†
††
Indicates management contract or compensatory plan or arrangement.
Furnished herewith
Confidential treatment was granted by the Securities and Exchange Commission for portions of this exhibit. These
portions have been omitted from the report and submitted separately to the Securities and Exchange Commission.
In accordance with Rule 406T of Regulation S-T, the information in this exhibits is furnished and not deemed filed or a
part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended,
is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to
liability under these sections and shall not be incorporated by reference into any registration statement or other
document filed under the Securities Act of 1933, as amended, except as set forth by specific reference in such filing.
111
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Stephen T. Winn, certify that:
1.
I have reviewed this Annual Report on Form 10-K of RealPage, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 24, 2012
/s/ Stephen T. Winn
Stephen T. Winn
Chairman of the Board, Chief Executive Officer and Director
1
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Timothy J. Barker, certify that:
1.
I have reviewed this Annual Report on Form 10-K of RealPage, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 24, 2012
/s/ Timothy J. Barker
Timothy J. Barker
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of RealPage, Inc. (the “Company”) on Form 10-K for the period ending December 31,
2011 (the “Report”), I, Stephen T. Winn, Chairman of the Board, Chief Executive Officer and Director of RealPage Inc.,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
my knowledge:
(1)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of RealPage, Inc.
Date: February 24, 2012
/s/ Stephen T. Winn
Stephen T. Winn
Chairman of the Board, Chief Executive Officer and Director
A signed original of this written statement required by Section 906 has been provided to RealPage, Inc. and will be retained
by RealPage, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing
certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a
separate disclosure document.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of RealPage, Inc. (the “Company”) on Form 10-K for the period ending December 31,
2011 (the “Report”), I, Timothy J. Barker, Chief Financial Officer and Treasurer of RealPage, Inc, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of RealPage, Inc.
Date: February 24, 2012
/s/ Timothy J. Barker
Timothy J. Barker Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to RealPage, Inc. and will be retained
by RealPage, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing
certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a
separate disclosure document.
BOARD OF DIRECTORS
STOCKHOLDER INFORMATION
Stephen T. Winn
Chairman & Chief Executive Offi cer
Alfred R. Berkeley III
Former President of NASDAQ
Richard M. Berkeley
Partner,
Camden Partners Holdings, LLC
Peter Gyenes
Former Chairman & Chief Executive Offi cer,
Ascential Software Corporation
Scott S. Ingraham
Principal,
Zuma Capital
Jeffrey T. Leeds
Co-Founder,
Leeds Equity Partners
Jason A. Wright
Partner,
Apax Partners
MANAGEMENT TEAM
Stephen T. Winn
Chairman & Chief Executive Offi cer
Timothy J. Barker
Chief Financial Offi cer & Treasurer
Dirk Wakeham
President
Margot Lebenberg
Executive Vice President,
Chief Legal Offi cer & Secretary
Ashley Chaffi n Glover
Executive Vice President,
Chief Sales and Marketing Offi cer
Jason Lindwall
Senior Vice President,
Chief Operations Offi cer
Kurt Twining
Senior Vice President,
Chief People Offi cer
Information about RealPage, Inc. and a copy of this 2011
Annual Report can be found online at http://investor.
realpage.com and a copy of this 2011 Annual Report
may be obtained from RealPage at no charge by request
to Investor Relations at our corporate offi ce, by phone
at 972-820-3773 or by e-mail to: ir@realpage.com.
RealPage has fi led with the Securities and Exchange
Commission the Chief Executive Offi cer and Chief
Financing Offi cer certifi cations required by Sections
302 and 906 of the Sarbanes-Oxley Act of 2002
as exhibits to its Annual Report on Form 10-K
for the fi scal year ended December 31, 2011.
Transfer Agent & Registrar
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
800-662-7237
www.computershare.com
Independent Registered Public Accounting Firm
Ernst & Young LLP
Annual Shareholder Meeting
June 6, 2012, 10:00 AM CT
4000 International Parkway
Carrollton, Texas 75007
CORPORATE HEADQUARTERS
Headquarters
4000 International Parkway
Carrollton, Texas 75007
Toll-free 1-87-REALPAGE
www.realpage.com
STOCK LISTING
NASDAQ Global Select Market
Symbol: RP
This document contains certain “forward-looking state-
ments” withing the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are based
on our management’s current expectations and are subject
to uncertainty and changes in circumstances. Actual results
may differ materially from these expections due to certain
factors, including those set forth under the caption “Risk
Factors” contained herin.
4000 International Parkway, Carrollton, TX 75007
1-87REALPAGE | www.realpage.com
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